LA WATCHDOG - Over the last six years, Los Angeles City payroll and related benefits have increased by $720 million, a 24% bump, as average salaries have increased to $82,000 a year, not including very generous benefits. And contributions to the City’s two pension plans have increased by $540 million (over 150%) as pension liabilities ballooned by almost $10 billion, a 40% increase.

So what is the source of all the cash that is needed to fund these out of control personnel costs?

One source of ready cash was the money needed to maintain and repair our infrastructure: our streets and bridges (ranked the worst in the nation), sidewalks, parks, stormwater drains, street lights, and buildings.  The City has also short changed its motor vehicle fleet such as police cars, fire engines, and garbage trucks and has neglected to modernize our Stone Age computer systems and hardware.

LA WATCHDOG - Hallelujah.  We have a Ratepayers Advocate.

But now the heavy lifting begins as the newly appointed Ratepayers Advocate, Dr. Frederick H. Pickel, must review and analyze the proposed three year increases of 22% and 25% in our water and power rates, respectively.And it appears we have a winner in Dr. Pickel, the unanimous selection of the Citizens Committee.  

Beginning in early December, this volunteer Committee, along with Heather Renschler of the executive search firm of Ralph Anderson & Associates, did yeoman’s work, screening over 60 qualifying resumes and conducting two rounds of in person interviews, including the final in depth interviews that required the four finalists to review and analyze reams of information about our Department of Water and Power and the proposed rate increases.

LA’S BUDGET CRISIS - The Mayor wants your thoughts on how to close next year’s budget deficit that is expected to be over $200 million in the red.

LA WATCHDOG - Throughout the recent discussions regarding the Department of Water and Power and the Energy Cost Adjustment Factor, there have been few if any concrete discussions about the impact on electric rates over the next ten years, especially as it relates to the Mayor’s 2020 goals of No Coal and 40% Renewables.

Needless to say, the lack of a Strategic Plan and an Integrated Resource Plan makes it very difficult to predict the costs and the impact on rates.

However, over the next decade, it would not be surprising if DWP had capital expenditures in excess of $10 billion.  This in itself will have a dramatic impact on rates.  

And this is one of the primary reasons for Transparency recommended in the Independent Fiscal Review by PA Consulting.  The existing and future programs for Alternative Energy, Demand Supply Management, and Energy Efficiency would be separated from the current Energy Cost Adjustment Factor and would be subject to the automatic review and approval of the City Council, just like Base Rates Increases that were approved in April 2008.

With Transparency, Ratepayers would have a much better understanding of why their rates were increasing as compared to the current black box methodology.

But how much will rates increase over the next decade? To date, the vocal and politically influential environmental community, along with the Mayor and his blackmailing minions, Carr, Carson and Szabo (none of whom know an amp from an ohm), have also been silent as to the costs and impact on residential and commercial Ratepayers.

However, when one environmental hot shot was asked if an increase of 25% a year for the next decade was reasonable, the response was: “25% a year is not unreasonable.”

If rates increased at 25% a year for the next ten years, our rates would increase over nine times, from 12.2¢ to 113.6¢ per kilowatt-hour.

No wonder the Mayor and the environmental community do not want Transparency.

(Jack Humphreville writes LA Watchdog for CityWatch He is  the President of the DWP Advocacy Committee and the Ratepayer Advocate for the Greater Wilshire Neighborhood Council. Humphreville is the publisher of the Recycler -- www.recycler.com He can be reached at lajack@gmail.com)  -cw





CityWatch
Vol 8 Issue 26
Pub: Apr 2, 2010

 

LA'S BUDGET CRISIS - The Mayor and his staff have developed a very good Budget Survey that addresses the issues and choices concerning next year’s budget deficit that is estimated by the City Administrative Officer to be in the range of $200 million to $250 million.

The survey questions involve Budget Priorities, Potential Service Reductions, a Sustainable Workforce, Revenue Opportunities, Public Private Partnerships, and Improved Financial Management Tools. There is also the opportunity to provide ample comment.

LA WATCHDOG - Of the 22 commissioners for the Department of Water and Power, the Port of Los Angeles, Los Angeles World Airports, and Public Works, 50% are women and 60% are non white.  Over 40% are lawyers.  About two thirds work for governmental or non profit organizations. Of the one third of the commissioners that work in the for profit sector, over 60% are lawyers.

These four City Departments have budgets of over $5 billion and are responsible for about 20,000 positions / employees, about 40% of the City’s work force.

However, of particular note, none of the commissioners have specific industry expertise or management experience in large complex organizations.

Why? As one elected official commented, “Rest assured, with maybe one exception, the Mayor’s recent appointments of politically pliant “Know Nothings” is not by accident!”

No wonder the City is broke!

 

Jack Humphreville writes LA Watchdog for CityWatch He is the President of the DWP Advocacy Committee and the Ratepayer Advocate for the Greater Wilshire Neighborhood Council. Humphreville is the publisher of the Recycler -- www.recycler.com. He can be reached at: lajack@gmail.com ) –cw

 

 

Volume 7, Issue 97

November 27, 2009

LA WATCHDOG - IF the proposed $254 million Transfer Fee from the Power System of the Department of Water and Power to the City’s General Fund is not permitted pursuant to the recently passed Proposition 26 (Super Majority Vote Required to Pass New Taxes and Fees Act), then the City’s projected deficit for the fiscal year beginning July 1, 2011 will soar to $712 million, a 55% increase over the current projection of $458 million.  (Link)

The less than transparent Transfer Fee, equal to 8% of the Power System’s prior year retail revenues, is one of the largest sources of cash for the City’s General Fund, representing 5.8% of the $4.38 billion of General Receipts. The Transfer Fee is typically paid in four installments, beginning in March when about 60% is put on the Money Train to City Hall.

However, the Transfer Fee may be illegal based on the provisions of Proposition 26 which was passed by 53% of the voters in November 2010.  Prop 26 requires a two-thirds vote of the electorate to pass fees that are not related to the actual costs of the services provided.

As a result, on February 4, the City of Redding was sued in Superior Court to prevent the Redding Electric Utility, a city department like DWP, from imposing a “Payment In-Lieu of Taxes” of almost $6 million on the Ratepayers. 

LA’s General Fund loss of the $254 million Transfer Fee from the DWP Power System will throw a monkey wrench into the current budget negotiations. 

As it is, the City is having a difficult time closing the projected $458 million General Fund Deficit, relying on yet to be negotiated savings from the most sacred of all cows, the Police Department and its very police protective league, the Fire Department and its obstreperous union, and the unionized Civilian Workforce.  There are also over $100 million of “Reductions and Efficiencies” which need to be implemented.

There are also a few more gimmicks that involve dumping unfunded mandates on Special Revenue departments and issuing commercial paper to pay off existing Convention Center debt and to fund pension fund payments related to the fiscally irresponsible Early Retirement Inventive Plan that added over $200 million to the unfunded pension liability of the 60% funded Los Angeles City Employee Retirement System. 

This is the equivalent of paying your second or third mortgage with a credit card that has a low teaser rate.

And remember, the current budget does not provide for the adequate repair and maintenance of our infrastructure (such as our lunar crater streets, sidewalks, and parks) or the proper funding of the $11.7 billion unfunded pension liability, including about $6 billion of the 68% funded Fire and Police Pension Plans. 

And these “devastating” reductions do not even address the projected deficit of $281 million for the following fiscal year beginning July 1, 2012. 

Needless to say, The Mayor Who Broke LA will go into high gear, denouncing Prop 26 and saying it does not apply to the 8% Transfer Fee.  But that will be for the courts to decide. 

In the meantime, the municipal bond investment community, including the influential credit rating agencies, will be making their own judgments on the merits of the City’s June offering of Tax and Revenue Anticipation Notes that are required to fund the City’s operations for the first half of the fiscal year. 

But who would buy the very risky Tax and Revenue Anticipation Notes?

Individual retail investors who are focused on the preservation of capital would pass because of the high level of risk.

The most likely buyers would be large mutual funds who are stretching for yield. But these are the same mutual funds that conservative investors buy. But who are these mutual funds that are rolling the dice with investor money?  More than likely the large mutual fund complexes and banks such as Fidelity, Vanguard, Wells Fargo, T Rowe Price, Bank of America, JP Morgan, Merrill Lynch, Schwab, Northern Trust, and a host of other gambling investment funds.

But even if the yield hogs invested in this highly speculative junk paper, they would focus on the shorter maturities that mature within seven months, not like the current issue that has maturities of over $600 million in May and June.

To insure a successful offering of Notes that will provide the cash to fund the City’s operations, the City needs to address the $712 million budget deficit in a manner that is acceptable to the investment community.  And the City needs to brace itself for very high interest rates.  Otherwise, the City will run out of cash.

One alternative is for the City to ask the voters to approve the 8% Transfer Fee.  But what is the likelihood that voters would approve such a tax or a fee given the electorate’s lack of trust and confidence in the Mayor, City Hall, and the campaign funding leadership of City’s unions?

At the same time, DWP, which has its own set of trust issues, is asking for another significant increase in our water and power base rates.

But if our Elected Elite placed the 8% Transfer Fee on the ballot, what would the Citizens of Los Angeles demand in return?

The City must address the need for true structural reform, including the development and implementation of a long term solvency plan that addresses the repair of our infrastructure; true pension reform as suggested by The Little Hoover Commission; work place reform that focuses on the efficient delivery of core services and the rationalization of the compensation, benefit, and seniority arrangements; and a complete reform of the collective bargaining process.

As an incentive to Ratepayers, the Transfer Fee also needs to be restructured whereby the transfer is equal to 5% of the Power System’s revenues, provided that it is not lower than the current level of $254 million, adjusted for inflation. 

The City must also establish a Citizens Advocate, consisting of non political independent grownups, which has the right to review and oversee the operations and finances of the City and its related entities, not dissimilar to the New York City’s Emergency Financial Control Board that was established in 1975 when the Big Apple almost tanked. 

While the loss of the $254 million Transfer Fee has draconian implications, it will force our Mayor Villaraigosa, Controller Wendy Greuel, City Council President Eric Garcetti and the rest of our Elected Elite to address its structural deficit and make the necessary and reasonable financial and work place reforms that will be demanded by the electorate. 

And who knows, the inability of DWP to put the Transfer Fee on the Money Train to City Hall may offset the proposed increase in our electricity rates. 

(Jack Humphreville writes LA Watchdog for CityWatch He is the President of the DWP Advocacy Committee and the Ratepayer Advocate for the Greater Wilshire Neighborhood Council. Humphreville is the publisher of the Recycler -- www.recycler.com . He can be reached at:    lajack@gmail.com)             -cw





CityWatch
Vol 9 Issue 38
Pub: May 13, 2011


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