LA WATCHDOG--The unfunded liability for the Department of Water and Power’s retirement liabilities improved as a result of the 12.7% return on invested assets for the fiscal year ending June 30, 2016. As a result, the shortfall decreased from $2.8 billion (81% funded) to $1.8 billion (88% funded). 

LA WATCHDOG--As a result of Raul Bocanegra’s resignation from the State Assembly, taxpayers will have to foot the bill for a special election to fill his seat.  This will more than likely include two trips to the polls, a primary and then a runoff, costing taxpayers an estimated $2 million, if not more.  And this does not take into consideration the distraction caused by this special election or the campaign dollars spent by the aspiring candidates. (Photos above: State Senators Kevin de Leon, left and Ricardo Lara) 

LA WATCHDOG--On Tuesday, November 28, the politically appointed Board of Water and Power Commissioners rubber stamped the transfer of $242 million of Ratepayer money from the DWP’s debt burdened Power System to City Hall without any meaningful discussion. 

LA WATCHDOG--As a result of an expose in the Los Angeles Times that disclosed numerous incidents of groping and sexual harassment, State Assemblyman Raul Bocanegra (D-Pacoima) announced that he will not seek reelection and that he will resign from the California State Assembly on September 1, the end of the legislative session.  

LA WATCHDOG--Why are Councilmembers Paul Krekorian, the Chair of the Budget & Finance Committee, and Paul Koretz, the Chair of the Personnel Committee, and Mayor Eric Garcetti unwilling to be transparent about the City’s pension crisis that contributes to its never ending Structural Deficit and is crowding out basic services to Angelenos?  

LA WATCHDOG--For the last four seasons, three million Southern California households have been unable to watch the Dodgers in the comfort of their own homes because of a business dispute between two media giants, Charter Communications, the owner of Time Warner Cable now doing business as Spectrum, and Direct TV, a wholly owned subsidiary of AT&T, the world’s largest telecommunications company with a market capitalization exceeding $200 billion. 

LA WATCHDOG--Ever since The New York Times broke the story on October 4th about the sexual harassment and rape allegations against Hollywood mogul Harvey Weinstein, numerous other victims have surfaced, naming not only Harvey Weinstein, but other Hollywood predators, including filmmaker Brett Ratner, actor Kevin Spacey, and director James Toback. And no doubt there will be others who have used their power and status to prey on those lower down on the food chain.  

LA WATCHDOG--On April 20, 2018, Mayor Eric Garcetti will submit his Proposed Budget for the fiscal year beginning on July 1, 2018 to the City Council.  Between now and then, the Mayor and the City Council will develop the budget behind closed doors without any input from the public, including the charter authorized Neighborhood Councils. 

LA WATCHDOG--The establishment of the municipally owned Bank of Los Angeles is an idea that is enthusiastically supported by City Council President Herb Wesson and the other members of the Council.   

LA WATCHDOG--On Monday, The Weinstein Company (the “Company”) “announced that it has entered into a preliminary agreement with Colony Capital (“Colony”) to provide an immediate capital infusion into the Company. In addition, the Company has entered a negotiating period with Colony Capital for a potential sale of all or a significant portion of the Company's assets.” 

The Weinstein Company Announces Investment from Colony Capital. 

The Weinstein Company has been under siege since early October when The New York Times revealed sexual harassment and rape allegations against Harvey Weinstein, the Company’s founder, co-chairman, and celebrated rainmaker. 

As a result of Harvey Weinstein’s rampant sexual misconduct, the Company in its current form is essentially out of business.  After all, what self-respecting member of the Hollywood community, whether it be the talent or their agents, would work with (or even talk to) this sexual predator. 

LA WATCHDOG--The four Garcetti appointed trustees of the Board of Administration of the Los Angeles City Employees’ Retirement System (“LACERS”) have demonstrated that they have placed their personal interests ahead of those of the almost 43,000 members who are dependent on LACERS for their retirement benefits.

LA WATCHDOG--On April 20, slightly less than seven months from now, Mayor Eric Garcetti will submit his proposed budget for the fiscal year beginning July 1, 2018 to the City Council for its consideration.  While the Budget and Finance Committee will hold hearings over the following weeks, the budget is already a done deal, having been negotiated behind closed doors between the Mayor and City Council with input from the leaders of the City’s unions. 

LA WATCHDOG--On September 13, Controller Ron Galperin released a first ever Report Card for our Department of Recreation and Parks. It was based on interviews by consultants with over 3,700 park using Angelenos and onsite reviews of 40 of our 95 community parks.  (Photo above: Los Angeles Controller Ron Galperin announces Rec & Parks Report Card.) 

Overall, these 40 community parks received a grade of B (an 86) based on the equal weighting of 12 measurements.  But this hides the fact that many Angelenos are concerned about their safety in the parks (46%) and the poorly maintained bathrooms (37%), especially in three of the five surveyed areas. 

Of the 40 parks that were surveyed, 16 (40%) received a D on the restroom maintenance.  But that percentage leaped to 57% (16 of the 28 parks) for the East San Fernando Valley, Metropolitan, and South LA / Harbor Areas.  On the other hand, the West San Fernando and Westside Areas had no failing restrooms and had an overall of grade of a B on restrooms. 

One the underlying reasons for the lack of safety and the foul restrooms is that the Department’s budget has been decimated by City Hall. 

Under the City’s “full cost recovery” program that was instituted in 2010 by Mayor Villaraigosa and then City Council President Eric Garcetti, $410 million has been diverted from the operating budget of the Department of Recreation and Parks.  

This year alone, Recreation & Parks is being hit up for $71 million, including $25 million for utilities (water and power), $2 million for refuse collection, and $44 million for “General Fund Reimbursement” to cover pension contributions, human resource benefits, and other related expenses. This represents 38% of the charter mandated appropriation of $186 million.  

As a result, the Department’s headcount has been reduced by almost a third, resulting in less maintenance and even fewer programs and activities. 

But the “full cost recovery” program does not apply to any City department other than the Library, whose appropriations, like those of Recreation and Parks, are mandated by the City Charter.  However, in 2011, 63% of the voters approved Measure L which increased the Library’s charter mandated appropriation by 71%.

LA WATCHDOG--On Thursday, Amazon announced that it was opening a search for second headquarters city (HQ2) in North America and was requesting proposals from interested state/province, county, and city governments by October 19.   

LA WATCHDOG--The rollout of the City’s Commercial Waste Exclusive Franchise System has caused sticker shock to many businesses, multi-family buildings, and homeowner associations as they have been bushwhacked by rates that in “many instances ….. have doubled, tripled, and even quadrupled, with the inclusion of new fee assessments that did not exist under the previous private hauler agreements” according to a letter sent by Councilmember Mike Bonin to Councilwoman Nury Martinez, the Chair of the Energy, Climate Change, and Environmental Justice Committee of the Los Angeles City Council. 

LA WATCHDOG--It is not government’s obligation to provide services, but to see that they are provided. – New York Governor Mario Cuomo 

LA WATCHDOG--Mayor Eric Garcetti and the four other members of the Executive Employee Relations Committee (Council members Wesson, Englander, Krekorian, and Koretz) are negotiating new contracts with the Coalition of City Unions and the Police Protective League.  The current agreements expire on June 30, 2018. 

LA WATCHDOG--As part of LA’s Clean Energy Future program, Mayor Eric Garcetti and the Los Angeles City Council and its Energy, Climate Change, and Environmental Justice Committee (formerly known as the Energy and Environment Committee) have called for the Department of Water and Power to study and develop a plan for DWP to generate 100% of its power requirements from renewable energy resources. 

LA WATCHDOG--President Trump is threatening to trash the 23 year old North American Free Trade Agreement (“NAFTA”) because he is bent out of shape by our $63 billion trade deficit with Mexico. But that would be a huge error and not in the best interests of the United States and Southern California. 

LA WATCHDOG--Our streets are some of the worst in the country, hardly worthy of a world class city that will be hosting the 2028 Olympics.  Yet the repair and maintenance of our 28,000 lane miles of residential and arterial streets is not a priority for City Hall.  

Over the last two years, Mayor Eric Garcetti and the Budget and Finance Chair Paul Krekorian have cut the funding from the General Fund to the Pavement Preservation Program by over 50% (from $52.3 million to $25.5 million).  At the same time, General Fund revenues have increased by $435 million. 

Underlying the budget cut for the Pavement Preservation Program is the ever growing expenditures for personnel, ranging from increases in salaries; pension contributions; health, dental, and other benefits; workers’ compensation benefits; and police overtime. 

For this year alone, the $213 million increase in personnel expenditures exceeded the growth in General Fund revenues by $10 million.  This shortfall results in a “service insolvency,” where the City is able to pay its bills (primarily salaries and benefits), but basic services are neglected or “crowded out.”  These services include the maintenance of our streets, sidewalks, parks, urban forest, and the rest of the City’s infrastructure as well as desperately needed investments in computer technology and management information systems.  

Overall, the budget for the Pavement Preservation Program has been cut 17% over the past two years, from $157 million to $131 million.  Sources of revenue other than the General Fund ($25 million) have remained stable, including the Special Gas Tax ($65 million), local return revenues from the Metro related sales taxes ($32 million from Measure R and Proposition C),and the Street Damage Restoration Fee ($9 million).  

The City claims that this cut in the Pavement Preservation Program will not result in a lower level of service.  Through “operational efficiencies and cost effective methods of implementation,” the City will be able to repair 2,400 miles of streets, up from 2,200 in in 2015.  

The Pavement Preservation Program is designed to maintain the condition of our streets in their current average poor condition.  But it does not address the 8,200 miles of failed D and F streets that are in need of very expensive resurfacing or reconstruction.  

The ticket to repair and maintain our failed streets is estimated to be in the range of $3 to $4 billion over the next fifteen to twenty years.  This will require a tax increase of about $250 million a year.  This is the equivalent of a 5% increase in our property taxes, a half cent increase in our sales tax to 10%, or a parcel tax of $320.  

There are ways to eliminate or mitigate this general tax increase.  

The City could allocate a greater share of the $250 million in Local Return revenue from the Metro related sales tax, especially those related to Measure R (2008) and Measure M (2016) to our failed streets.  The same for the local return of an estimated $100 million from the State’s new $5.2 billion a year gas and vehicle tax.  The City could also be more aggressive in collecting the Street Damage Restoration Fee as was recommended by Controller Ron Galperin.  

The City could also allocate a portion of its increased budget revenues to our failed streets.  Over the next four years, revenues are projected to increase by $650 million.  

Alternatively, we would benefit from outsourcing the repair and maintenance of our streets to independent contractors who would not be burdened by the City’s overly restrictive work rules.  They are probably more efficient than the poorly managed Bureau of Street Services that was panned in Controller Galperin’s 2014 audit. 

Before the City considers another massive tax increase, it needs to not only develop a detailed operational plan for the repair and maintenance of our 28,000 miles of streets, but also a comprehensive financial plan for the City that considers alternative sources of financing and eliminates the “service insolvency” that adversely impacts our quality of life.  

Over the last year, Angelenos have been hit with $1.6 billion in new taxes.  This includes our share of the tax increases implemented by the Metro and the County (40%) and the State (10%).  This is the equivalent a 30% increase in our property taxes or a 2½ cent increase in our sales tax. 

Can we afford to be hit with another massive tax by the City? 

(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.  He can be reached at:  lajack@gmail.com.)

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LA WATCHDOG--On Tuesday, Los Angeles City Council President Herb Wesson made a motion to look into the feasibility of creating the “Bank of Los Angeles” with a vision statement of “financing the building of affordable housing,” making loans to “small business entrepreneurs,” and accommodating the cannabis industry and its banking requirements.

LA WATCHDOG--In an Op-Ed column Tax Land, Not Development last week in the Los Angeles Times, three professors at the UCLA Luskin School of Public Affairs have proposed a “flat tax of $3 per day on every parcel in the City” to fund affordable housing in the City of Los Angeles.  This “small land tax” would replace the proposed linkage fee on new residential and commercial development that would raise “only” $100 million a year, an amount that the three professors deem insufficient to solve the City’s housing problem. 

LA WATCHDOG--In his second inaugural speech that would make any upwardly mobile politician proud, Mayor Eric Garcetti took credit for the City’s economic recovery and promised us a glorious and prosperous future. But he was short on the details.  

LA WATCHDOG--At the All Star break, our Los Angeles Dodgers have the best record (.678) in Major League Baseball, having won 61 games and losing only 29. Over the past month, they have notched 24 wins and only 4 losses, a winning percentage of an impressive 85.7%  This streak included three game sweeps against the then first place Colorado Rockies and Arizona Diamondbacks, allowing the Bums to open a 7½ game lead over the second place Diamondbacks in the National League West. 

LA WATCHDOG--One of the most frustrating things about driving in the City of Los Angeles is when a clueless or inconsiderate driver is unable to make it through the intersection before the light turns red, creating a gridlocked intersection.  This results in even more congestion on our City’s already clogged streets, safety issues for both drivers (just ask Venus Williams) and pedestrians, increased pollution, and a bevy of frustrated drivers, many of whom express their displeasure by laying on their horns and making not so polite gestures with their hands and fingers. 

LA WATCHDOG--On Monday afternoon of June 19, 2017, the Board of Water and Power Commissioners sent us a notice that they were holding a Special Meeting on the following day, Tuesday, June 20, at 11:30 in the morning, to approve the new contract between the Department of Water and Power and the IBEW, its domineering union that is led by campaign funding Union Bo$$ Brian d’Arcy.

LA WATCHDOG-- “There probably is more managerial ignorance on pension costs than any other cost item of remotely similar magnitude. And, as will become so expensively clear to citizens in future decades, there has been even greater electorate ignorance of governmental pension costs.”  Warren Buffett (photo above), Berkshire Hathaway, 1975. 

LA WATCHDOG--At a hastily called special meeting on Tuesday, the politically appointed Board of Water and Power Commissioners approved, with very little discussion, a new five year labor agreement between our Department of Water and Power and the IBEW, the union that represents over 90% of DWP’s employees. 

UNDER THE RADAR--At 12:56 on Monday afternoon, June 19, 2017, we were notified by email that the politically appointed Board of Water and Power Commissioners will hold a Special Meeting on Tuesday, June 20, 2017 at 11:30 in the morning to approve a resolution authorizing Approval of Amendments to the Memoranda of Understanding for ten bargaining units represented by IBEW Union Bo$$ d’Arcy for the term October 1, 2017 through September 30, 2022. 

LA WATCHDOG--Operationally, the Alameda Corridor has been a huge success. 

LA WATCHDOG--Why has Councilmember Paul Krekorian, the Chair of the Budget and Finance Committee of the Los Angeles City Council, refused to address the massive unfunded pension liability of the City’s two pensions funds and the ever increasing annual required pension contributions that will devour the City’s budget and adversely impact the quality of life of future Angelenos?

LA WATCHDOG--On Wednesday, the City Council approved, behind closed doors, a Settlement Agreement involving a class action lawsuit against the City of Los Angeles and the Department of Water and Power that alleged that the City had illegally collected over $1.8 billion in Transfer Fees from DWP and its Ratepayers subsequent to the approval of Proposition 26 (The Supermajority Vote to Pass New Fees and Taxes) in November of 2010.  

The plaintiffs also requested that the Transfer Fee be eliminated since it was not approved by the voters. 

But once again, we are getting the shaft. 

Under the terms of the settlement, DWP will place $52 million into a Settlement Fund.  But at the end of the day, only $40 million will be available to the Ratepayers as the ambulance chasing lawyers who “represented the best interests” of the Ratepayers will be paid at least $10 million from the Settlement Fund. 

The Net Settlement Fund of $40 million represents a meager 2.2% of the $1.8 billion that Ratepayers forked over to our profligate City to fund ever increasing salaries and pension contributions.   

For the average household that uses 500 kilowatt hours a month, the total refund is whopping $10.  This compares to $460 that the average Ratepayer forked over to DWP to finance the Transfer Fee over the past seven years. 

LA WATCHDOG--Our cash strapped City is “exploring the implementation” of a Child Savings Account program for each public school kindergarten student who lives in the City of Los Angeles.  This program would cost $2.7 million a year as $50 will allocated to each of the 44,000 (charter and non-charter) kindergarten students in the Los Angeles Unified School District.  This amount includes matching funds for the 25% of the families who make an additional contributions, but does not include the 11,000 LAUSD students who do not live in the City. 

LA WATCHDOG--On Thursday, the Los Angeles City Council approved a “fiscally responsible” budget for the upcoming fiscal year beginning July 1, 2017 despite what they claimed were “challenging” economic times. But despite all the self-congratulatory speeches, the City’s budget is a train wreck as pension denier Paul Krekorian, the Chair of the Budget and Finance Committee, City Council President Herb Wesson, and Mayor Eric Garcetti continue to kick the budget can down our lunar cratered streets. 

LA WATCHDOG--The second most dangerous place in the City of Los Angeles is when you stand between cash and the City’s General Fund, even if the source of this revenue adversely impacts our neighborhoods and quality of life.  

This is the case with the City’s 14% Transient Occupancy Tax (the “hotel tax”) that is collected by Airbnb and other short term rental web sites (collectively, “Airbnb”) from their hosts who illegally rent their rooms, apartments, and houses for less than 30 days. 

We are not talking chump change for this recently discovered gold mine.  

For the fiscal year ending June 30, 2017, the City budgeted revenue of $5.8 million from Airbnb, up from zero in the previous year.  But lo and behold, the revised estimate is a whopping $27.5 million, a $21.7 million bump that aroused the financial wizards that occupy City Hall.  And for the upcoming fiscal year beginning July 1, 2017, the City is projecting a haul of $33.7 million, a 23% increase from the revised estimate. 

This implies that Airbnb hosts had revenues of $240 million, which, in turn, produced over $30 million of revenue for Airbnb. 

While Airbnb, its hosts, and the City each have a vested interest in maximizing revenue, this financial goal may run counter to the wishes of many Angelenos who believe that the in-and-out flow of transients disturbs their neighborhoods and compromises their safety, quality of life, and quiet enjoyment of their neighborhoods and apartment complexes.    

The hotel industry is also opposed to Airbnb because it represents a competitive threat, diverting revenue from their hotels by offering a low-cost alternative for tourists and the business community. 

The unions that represent hotel employees are also bent out of shape as they believe that the diversion of revenue from hotels will result in fewer union jobs and lower dues revenue to cover their overhead.  

The affordable housing and tenants’ rights advocates are also opposed to Airbnb because selected landlords are converting apartments to short-term rentals, depleting the supply and causing already high rents to increase.  This may force many displaced and already rent burdened tenants into even more over-crowded apartments or onto the harsh streets of LA.       

The budgeted revenue assumes that there will be no change in the existing policy. But the City Administrative Officer estimated that if the Airbnb hosts were limited to one property and if the annual number of nights booked is capped at 180, then revenue would drop from 46%, from $33.7 million to $18.2 million, a swing of $15.5 million.  

Several organizations such as Keep Neighborhoods First are proposing a 60-day cap that they argue will allow for true home sharing and preserve affordable housing by limiting the incentive for landlords to enter the short term rental market. But this cap may further reduce revenues for the City. 

The Planning and Land Use Management Committee chaired by Jose Huizar is expected to consider the Home Sharing Ordinance that will pit the financial interests of the City and Airbnb and its hosts against quality of life interests of homeowners and apartment renters, the hotel industry and their unions, and rent burdened tenants and their advocates.  

More than likely, the money grubbing Mayor and City Council will put on a show and express their concerns, but the result will be that the Garcetti and the City Council will sell us out and go with the dough.  

As a side note, overall revenues from the hotel tax are projected to increase by almost 7% to $282 million.  This represents almost 5% of General Fund revenue.  But this revenue estimate may be optimistic as international visitors, who spend more than twice as much as domestic tourists, may be turned off by the Trump Effect and the strong dollar. 

By the way, the most dangerous place in Los Angeles is when you are between the campaign war chests of our Elected Elite and cash campaign contributions from real estate developers, leaders of the City’s unions, and other self-serving ring kissers such as Airbnb.

(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.  He can be reached at:  lajack@gmail.com.)

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LA WATCHDOG--On Tuesday, May 2, the 90-minute presentation, Back to Work to Fix LA, by the Coalition of LA City Unions to the Budget and Finance Committee of the Los Angeles City Council was not a discussion of the financial implications of achieving the goal of hiring 5,000 new civilian workers.  Rather, it is a follow up to the goals delineated in the “historic” 2015-18 labor contract and an outline of union demands for the upcoming labor negotiations for the contract that expires on June 30, 2018. 

While the goals of restoring public services, creating good jobs for Angelenos, and ensuring public safety are all laudable goals, how will the City be able to afford increasing the size of its civilian work force to 36,000 employees, the level before the City was hit by the Great Recession, from the current level of 31,000 workers? 

The Four-Year Budget Outlook that was prepared by the City Administrative Officer is projecting a budget deficit of $104 million for the year that begins on June 30, 2018 and a cumulative four-year deficit of almost $300 million.  

These shortfalls do not take into consideration an estimated $100 million increase in the annual required contribution to the City’s two pension plans associated with the lowering of the investment rate assumption to 7¼% from the overly optimistic rate of 7½%. 

[The projected rate of return for the City’s two pension plans is 6.2%, the rate of return projected by CalPERS, the country’s largest pension plan.  This implies that the annual required contributions based on the 7¼% assumption will short change the pension plans and result in an even greater unfunded pension liability.] 

Nor does the Outlook account for any increase is salaries and benefits that will come from a new labor contract with the civilian unions. This will probably add $50 to $75 million a year to the deficit. 

These extra cash expenses will increase the annual budget gap to $250 million in 2018-19 and the four-year cumulative deficit to almost $1.2 billion.  And this does not include any salary increases for the Police Department. 

The obvious conclusion is that the City cannot afford any raises to say nothing about expanding the size of its work force. 

There has also been no discussion about the efficiency (or inefficiency) of the City’s work force.  To the contrary, the civilian unions are trying to develop a monopoly over city services and contracts by making outsourcing even more difficult, even if independent contractors are more efficient. 

But it seems as if City Hall has not gotten the message from former New York Governor Mario Cuomo who said, “It’s not government’s obligation to provide services, but to see that they are provided.” 

This is not to say that you lay off City workers.  But a little “managed competition” between city work crews and private contractors will give us a better understanding of how efficiently(or inefficiently) our money is being spent. 

Despite the $1.2 billion increase in General Fund revenues, the spendthrifts that occupy City Hall have managed to perpetuate the Structural Deficit where the growth in labor costs exceeds the growth in tax revenues.  

While it may be difficult, Mayor Eric Garcetti, the Paul Krekorian (photo above) led Budget and Finance Committee, and the rest of the members of the Herb Wesson City Council must develop the political will to say NO to the demands of the campaign funding union leaders. 

We cannot afford any more budget busting contracts.

(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.  He can be reached at:  lajack@gmail.com.)

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LA WATCHDOG--While the City’s General Fund revenues have increased by $1.24 billion (27%) over the last five years, why is the cash balance of City’s Reserve Fund projected to be $21 million below the policy goal of $289 million, an amount equal to 5% of General Fund revenue of $5.8 billion? 

But more to the point, why are the combined balances of the Reserve Fund and the Budget Stabilization Fund $215 million short of the $578 million policy goal (equal to 10% of General Fund revenue) recommended by the City Administrative Officer?  

Over the years, the CAO has been a broken record, stressing that the City maintain healthy and growing reserves because they are an important component supporting the City’s high investment grade bond ratings.  This is especially true given the City’s Structural Deficit (where the growth in personnel costs exceed the increases in revenues), the City’s massive unfunded pension and deferred maintenance liabilities, and the volatility of the Southern California economy. 

Underlying this deficit in the City’s reserves is the fact that City Hall has raided the Reserve Fund for $213 million over the last three years.  This is despite healthy increases in revenues.  As a result, the cash balance is projected to be $268 million on June 30, 2018, only 4.6% of General Fund revenue, the lowest level in years.  

But this estimate may be on the high side because the Reserve Fund may have to cover budget shortfalls for this fiscal year caused by lower than expected revenues and higher than anticipated legal settlements.  There may also be budget shortfalls for the upcoming fiscal year because of continuing legal liabilities that may exceed the projected budget of only $109 million.

City Hall was unable to divert funds from the Reserve Fund for the upcoming fiscal year because the cupboard was bare.  But that did not stop the financial wizards from diverting $75 million from the $95 million Budget Stabilization Fund. 

The City has funded the Budget Stabilization Fund with excess revenues from seven economy sensitive taxes: Property Taxes, Utilities Users’ Tax, Business Tax, Sales Tax, Transit Occupancy Tax, Documentary Transfer Tax, and Parking Users’ Tax.  Revenues are considered excess when they are more than 3.4% above the prior year’s budgeted revenues. 

But rather than devote the $75 million of excess revenues to the rainy day funds, City Hall allocated this cash to the Capital Improvement Expenditure Program, claiming these funds were devoted to one time capital expenditures.  But the Capital Improvement Expenditure Program is an integral part of every annual budget, not a bunch of one off expenditures as City Hall would like us to believe. 

In years of plenty, prudent stewards of our money would put excess cash into reserves so that we will have adequate resources when the lean years are upon us.  But the grasshoppers who occupy City Hall have not learned this basic lesson of life and finance as they continue their spendoholic ways and ignore the realities of our volatile Southern California economy. 

City Hall will more than likely issue $60 million of Judgment Obligation Bonds to help shore up the Reserve Fund.  But this is only an interim, ill conceived, debt financed maneuver. The real question is whether Mayor Garcetti, Budget and Finance Chair Paul Krekorian, and the rest of the Herb Wesson led City Council have the political will to do the right thing and sock away enough cash so we can endure the down economy. 

The odds say no way. 

(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.  He can be reached at:  lajack@gmail.com.)

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Mayor Eric Garcetti and the City Council have convinced themselves that the proposed 2017-18 budget is a “fiscally responsible spending plan” that supports the Mayor’s Back to Basics priority goals of a safe, prosperous, livable, sustainable, and well run city looking to fulfill its destiny as a world class city. 

But the Los Angeles Times does not buy into Garcetti’s overly optimistic rhetoric, stating in an editorial that “the Mayor and the City Council need to GET REAL on the City’s finances” if they want LA to be a “progressive, transformed city.” 

[Los Angeles Times Editorial: Despite a surge in revenue, L.A. is still feeling the budget crunch

Underlying the Times’ reasoning is that although City revenues have increased by $1.2 billion since Garcetti became mayor, the “City is still stuck with an ongoing $200 million Structural Deficit” that requires “all kinds of budget gymnastics” to balance the budget, resulting in even more reductions in essential services to Angelenos. 

The Times also pointed out numerous budget vulnerabilities, ranging from fewer federal dollars, the legality of the $242 million Transfer Fee from the Department of Water and Power, more expensive labor contracts, significantly higher pension contributions, and another budget busting recession. 

Unfortunately for the next generations of Angelenos, Garcetti and the City Council are focused only on the present and have their heads in the sand when it comes to any discussion about the City’s financial future.  And understandably so as they will be long gone when the spaghetti and meatballs hit the fan. 

The City’s Four Year Budget Outlook anticipates a budget gap next year (2018-19) of $104 million and a cumulative budget gap of almost $300 million. But this does not include the impact of new labor contracts, increased contributions to its two pension plans, or any comprehensive plan to repair and maintain our lunar cratered streets, broken sidewalks, and the rest of our deteriorating infrastructure. 

Over the next four years, the City is expected to negotiate new labor contracts with the police, firefighters, and civilian unions that will cost an estimated $200 million a year by the end of the fourth year. 

If the City adopted a comprehensive plan to repair and maintain our streets and sidewalks, this $4 billion program will cost an estimated $250 million a year.  Alternatively, the City could continue to neglect our streets, but the ultimate cost would be considerably more than $4 billion.  

This does not include money needed for the City’s parks, urban forest, street lights, buildings and facilities, or its antiquated computer systems.  

The City is also underfunding its two pension plans as it is relying on an overly optimistic investment rate assumption of 7.5%, rather than 6.5% as recommended by knowledgeable investors, including Warren Buffett of Berkshire Hathaway fame and fortune. But if the City used the more realistic rate of 6.5%, the City’s annual required contribution would increase by an estimated $400 million.  

Overall, these three adjustments would increase the annual deficit to over $800 million while the four-year cumulative deficit balloon to $3.4 billion. 

While some of these deficits may be offset by new sources of revenues such as the pot tax, a billboard tax, revenue resulting from the new gas tax, and the linkage fee, there is still a considerable gap that needs to be addressed. 

The Mayor and the City Council will ignore these findings.  After all, these financial wizards are the smartest people in the room.  But this is where the Los Angeles Times comes to our rescue by demanding that we have an open and transparent discussion about the City’s budget and its future obligations that have been ignored for years.  

For the sake of the next generations of Angelenos, it is time for the Mayor and the members of the City Council to GET REAL about the city’s precarious finances. 

 

(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.  He can be reached at:  lajack@gmail.com.)

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:  lajack@gmail.com.)

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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:  lajack@gmail.com.)

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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.  

LIVE LA BUDGET MEETING COVERAGE BEGINS THURSDAY—ON CITYWATCH

LA Watchdog reports live daily from every important budget meeting

CITYWATCHLA.COM 

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.  

NEW TAXES 

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.  

Metro (40%) 

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. 

County (40%) 

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 

City (100%) 

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. 

County (40%) 

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.  

State (10%) 

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:  lajack@gmail.com.)

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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.

(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--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 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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