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LA WATCHDOG-Comcast’s decision to terminate its $45 billion acquisition of Time Warner Cable may be good news for the 3.5 million Southern Californian households that have been deprived of the right to watch the Dodgers from the comfort of their own homes.  

Underlying this blackout of 70% of the market is the unwillingness of DirecTV, Charter, Cox, and other cable companies to pass along the $5 a month subscriber fee associated with TWC’s over-the-top offer to pay the Dodgers $8.35 billion over the next 25 years to distribute SportsNet LA, the Dodgers regional sports network.  Assuming five million subscribers, the public would eventually be tagged for $600 million a year when you factor in the 100% markup that is needed to preserve the distributors’ 50% gross profit margin.  

TWC has been reluctant to lower its price per subscriber because it may trigger a substantial write-off of its investment, probably in the range of $500 million to $1 billion. But TWC has been concerned that this sizeable hit to its financials would have an adverse impact on the market’s perception of its proposed deal with Comcast. 

But now that the deal with Comcast is history due to the opposition of the Federal Government, TWC is in a position where it can write-off not only its costs associated with the failed merger (probably in excess of $100 million), but a portion of the Dodger contract associated with a lower subscriber fee, probably in the range of $1 to $2 per subscriber, or $500 million to $1 billion. 

This write-off, while substantial, represents at most 2% of TWC’s $45 billion market value.  Furthermore, sophisticated investors, including Charter Communications which is interested in buying TWC, will see through the smoke and value the Dodger contract based on more rational assumptions. 

Consequently, it would be in everyone’s best interest for TWC to lower its price to around $3 a subscriber.  Unfortunately, life has become more complicated since early in 2013 when TWC inked its deal with the Dodgers. 

According to several newspaper accounts, the independent distributors may be trying to offset some of the high costs and low ratings associated with the TWC’s 20 year, $3 billion contract with the Lakers by lowering the subscriber fees for the Dodgers.  There may also be efforts to tie the fees of both the Dodgers and Lakers to their performance, thereby increasing TWC’s risk profile. 

The cable and satellite companies are also experiencing the increasing loss of subscribers as consumers are “cutting the cord,” embracing streaming services such as Netflix and Amazon in an attempt to lower their overhead.  This is forcing the distributors to become more cost conscious as can be seen by their reluctance to overpay for the Dodgers.

There is also considerable pressure for distributors to “unbundle” their basic offering which would allow consumers to choose channels on an a la carte basis. This is particularly true of the sports related offerings which comprise an estimated 50% of the cost of the basic cable TV package, but are only viewed by only 25% of the subscribers. 

This effort to “slim” down the basic offering is playing out in a lawsuit as Verizon, the sixth largest pay TV provider, is attempting to offer a basic package without ESPN, contrary to its contractual arrangement with the channel.  As a matter of interest, ESPN, along with its affiliated offerings that are forced upon the distributors, is by far and away the most expensive network.  

TWC is in an interesting predicament of its own making.  

Does it continue to lose $100 to $200 million a year by holding out for a $5 subscriber fee or does it take the $1 billion hit to its financials, recognizing that in its exuberance that it overpaid big time for the Dodgers’ media rights, cut its losses, and lower the subscriber fee to $3? 

If it is worried about its reputation, it is time for Time Warner Cable to take the hit for the home team.  It is time for Dodger baseball. 

 

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

  

CityWatch

Vol 13 Issue 35

Pub: Apr 28, 2015

LA WATCHDOG-We are entering the Silly Season of LA politics as the candidates for the open City Council seats are promising paved streets, level sidewalks, pension reform, a more efficient work force, restored services, development that is respectful of our neighborhoods, less traffic congestion, lower parking fines, affordable housing, housing for the homeless, a revitalized Los Angeles River, and the phase out of the gross receipts business tax, all without raising our taxes. 

These campaign pledges are nothing but hot air unless the City is able to fund its existing operations and these ambitious programs.  

However, this gives us the opportunity to ask the candidates a series of very simple questions about how they propose to eliminate the City’s projected budget deficits and its $25 to $30 billion mountain of unfunded pension liabilities, deferred maintenance, and existing long term debt. 

For openers, how do you intend to eliminate next year’s projected budget deficit of $165 million and the $425 million cumulative deficit over the next three years? 

The City Administrative Officer is projecting a budget surplus of $24 million for the 2018-19 fiscal year.  It assumes that there will be no raises or cost of living adjustments for City employees and that civilian workers will contribute 10% towards the cost of the City sponsored health plan.  Do you support these assumptions? 

Do you support the unanimous recommendation of the LA 2020 Commission to establish an Office of Transparency and Accountability to oversee the City’s finances? 

How do you propose to pay for the repair and maintenance of our streets and sidewalks? 

Do you support the LA 2020 Commission’s proposal to form a Committee on Retirement Security that will report its recommendations on how to “achieve equilibrium on retirement costs by 2020” within 120 days? 

Do you support the City’s creation of the new tier of pension benefits for new civilian employees even though the Employee Relations Board questioned its legality?  

What are your plans for pension reform?  

Do you believe that the City’s pension plans should be fully funded within 20 years?  

Do you support the proposal that would allow the City to amend future benefits for existing workers as was supported by San Jose Mayor Chuck Reed? 

Do you support the recent lowering of the investment rate assumption by the City’s two pension plans to 7½% even though it increased the City’s annual required contribution?  

Under what conditions would you support the lowering of the investment rate assumption to 6½%, a benchmark recommended by Warren Buffett of Berkshire Hathaway fame and fortune? 

How do you propose to finance the Mayor Garcetti’s plans for the Los Angeles River, Great Streets, and Sustainability? 

Mayor Garcetti pledged to phase out the $470 million gross receipts business tax? How would you replace the lost revenue? 

Do you support the “benchmarking” of City services to determine their effectiveness and efficiency?  And under what conditions would you support the contracting out of City services?  

Do you support transparent labor negotiations where all proposals and offers must be disclosed within 24 hours and that any proposed agreement be reviewed and analyzed by an independent third party prior to being approved by the City Council? 

Under what conditions would you support a half cent increase in our sales tax to fund the restoration of City services? 

Finally, do you support placing a measure on the ballot where voters would have the opportunity to accept or reject an amendment to reform our charter that would require the City to develop and adhere to a long term financial plan, pass two year balanced budgets based on Generally Accepted Accounting Principles, and, over the next twenty years, fully fund the City’s two pension plans and repair and maintain our streets, sidewalks, and the rest of our infrastructure? 

We deserve detailed written answers to all of these basic questions on how the candidates propose to eliminate the sea of red ink and reduce the $25 to $30 billion of liabilities that the current City Council is dumping on the next generation of Angelenos because of its inaction and its unwillingness to make tough decisions.  

Come to think of it, we should demand that Mayor Eric Garcetti, Council President Herb Wesson, Budget and Finance Chair Paul Krekorian, and all of the other members of the “kick the can down the road” City Council provide us with written answers to these questions. 

After all, it is not only our money they are squandering, but the future of our children and grandchildren. 

 

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

 

 

 

CityWatch

Vol 13 Issue 2

Repub: Jan 6, 2015

 

LA WATCHDOG--In April of 2014, the Los Angeles 2020 Commission recommended the establishment of the Los Angeles Utility Rate Commission to oversee the operations and finances of our Department of Water and Power, determine our utility rates in an objective manner, and appoint the General Manager. 

But this attempt to eliminate or minimize the “political interference” from City Hall, the Mayor, and their cronies never saw the light of day as City Council President Herb Wesson and Energy and Environment Chair Felipe Fuentes buried this recommendation deep in the bowels of City Hall.  

Two other excellent measures posed by Mickey Kantor’s LA 2020 Commission were also deep sixed by Wesson.  These included the formation of an Office of Transparency and Accountability to monitor the finances of our cash strapped City and the establishment of the Commission for Retirement Security to review the City’s seriously underfunded pension plans and to make “concrete recommendations on how to achieve equilibrium on retirement costs by 2020.” 

However, last week, Controller Ron Galperin, in collaboration with the Mayor and City Council, released the charter mandated Industrial, Economic, and Administrative Survey covering DWP that called for, among other things, the reform of the Department’s governance. According to this 581 page report, the current system is plagued by too many cooks in the kitchen, where no one entity is responsible for the Department’s operations and where our all-knowing Elected Elite are second guessing management, developing unrealistic policies and goals, and have no respect for the wallets of the Ratepayers.  This is compounded by the overall lack of transparency, flawed management information systems, unclear lines of authority, and a general distrust of the Department and the City’s meddling politicians.  

Navigant Consulting, the well regarded firm that prepared the IEA Survey, called for a hybrid committee of City Hall insiders to develop a consensus on a solution that would then be placed on the 2017 ballot.  

But this recommendation is flawed because it does not include input from the Ratepayers and the Neighborhood Councils.  

The Ratepayer Advocate and its consultant, Navigant, are also calling for “Performance Reporting” to be included in the ordinance authorizing the increase in our utility rates.  This would require management to provide the Ratepayers Advocate and the Board of Commissioners with periodic reports identifying performance metrics and goals and comparing them to actual results.  This would result in increased transparency, especially if this information was made available to the Ratepayers.  

The Ratepayers Advocate also indicated that the Water System’s proposed five year rate increase of 25% to 30%, or about 5% a year, was “reasonable.” Unfortunately, he found that the rate increase was less than what is needed to repair its aging pipes, valves, and water mains, but this was justifiable because DWP does not currently have the capacity to meet the desired long-run replacement cycle because of constraints on outsourcing and anticipated retirements. 

Navigant’s report indicated that the Department does a good job of keeping the water flowing and the lights on, but that to meet the future operational, organizational, and financial challenges, it is necessary to reform its current system of governance in order to be a dependable and efficient provider of water and power. 

And while this reform has met some resistance by Mayor Garcetti and certain members of the City Council who want to treat Ratepayers as mushrooms (in the dark and topped with manure) and as an ATM, now is the time to address change and bring the Department into the 21st Century.  With, of course, input from the Ratepayers. 

 

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

-cw

 

 

CityWatch

Vol 13 Issue 101

Pub: Dec 15, 2015

LA WATCHDOG-“Public, Private Sector Wage Gap Heavily Favors Many LA Workers,” a front page article in Sunday’s Los Angeles Times, marks the beginning of the conversation involving the efficiency of the City’s operations and whether the City should “outsource” a portion of its operations, including the repair and maintenance of our deteriorating streets and broken sidewalks. 

In their 1,300 word article, Peter Jamison and Catherine Saillant detailed how many city workers earn considerably more than their private sector counterparts, with premiums ranging from 40% to over 100%.  

City workers are also entitled to very hefty benefits that far exceed those in the private sector, including a Cadillac healthcare plan, a generous defined benefit pension plan, ample vacation time, 13 paid holidays, and 12 sick days at full pay.   

The City’s operations also appear to be poorly managed, hindered by the lack of management information systems as was detailed in Controller Ron Galperin’s audit of the Bureau of Street Services.  As a result, the Bureau does not have a very good grasp of its performance metrics and overall operation.  

Galperin also revealed that the Bureau has very low direct labor utilization rates (57%) which results in the overstaffing of its work crews.    

The City’s cost structure is also burdened by a bloated, paper pushing bureaucracy which results in excessive department overheads.  This is compounded by unsupported allocations for centralized services and City Hall administrative expenses that are needed, in part, to handle the disruptive interference from members of the City Council, their staffs, and their favor seeking cronies. 

Our cash strapped City can no longer support these inefficient operations that are crowding out the City’s ability to provide basic core services such as the repair and maintenance of streets and sidewalks and the enforcement of traffic laws, planning and zoning rules, building and safety regulations, and local zoning ordinances, all of which impact our quality of life.     

As a first step, the City needs to determine the efficiency of its departments by benchmarking their operations against other governmental entities and private enterprise. While this may be a novel experience for the City, it is standard operating procedure in the private sector.  

The City should also implement a policy of “managed competition” where the City contracts with private contractors for a portion of the work and compares the results with those of City work crews.  

The Department of Water and Power had such a policy to replace selected water mains.  This resulted in a DWP construction work crew incurring 100% cost overruns while at the same time blowing its deadlines.  The private contractors were, for the most part, on time and on budget.  

The City should also consider implementing performance based evaluations of its employees while lessening the importance of seniority.  This would provide the City with considerably more operational flexibility to lower its costs and deliver a finished product on time and on budget.  

Together, these three reforms, benchmarking, managed competition, and performance based personnel evaluations, would result in significant savings, freeing up to $200 million (less than 10% of the civilian personnel costs) that would be devoted to eliminating the Structural Deficit, repairing and maintaining our streets and sidewalks, and restoring vital city services that are essential to our quality of life. 

Unfortunately, the Herb Wesson led City Council will reject these reforms because it does not have the courage to stand up to the campaign funding City unions.  Its solution is to continue to play games with the budget by raiding the Reserve Fund and deferring needed expenditures.  At the same time, they are concocting a plan to persuade the City’s skeptical voters to approve a massive increase in our taxes.  

But this rope-a-dope strategy of prioritizing their own personal political goals at our expense is not going to fly as the voters will demand work place and budget reform.  Maybe it is time that City Hall took the advice of former New York Governor Mario Cuomo: 

“It is not government’s obligation to provide services, but to see that they are provided.”

 

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

 

CityWatch

Vol 13 Issue 36

Pub: May 1, 2015

LA WATCHDOG--The City is projecting a year-end budget deficit of almost $100 million according to the Second Financial Status Report dated December 4, 2015. 

This shortfall is primarily the result of the City Attorney’s projection that liability claims associated with legal judgements and settlements will soar to $138 million for the year ending June 30, 2016, an $84 million increase from the budgeted $54 million. 

While the specifics of this 155% increase have not been disclosed, “much of the shortfall is attributable to a small number of extremely significant cases arising from incidents or conduct which occurred many years ago.”  More than likely, however, the Los Angeles Police Department is responsible for a good chunk of this increase as the LAPD has been responsible for almost 60% of the $272 million in payouts over the last five years.

But how does the City intend to cover this projected $100 million budget deficit?

One alternative would be to raid the $375 million Reserve Fund.  But this would deplete this rainy day fund to a level of 5% of the $5.4 billion General Fund, an amount $50 million short of the 6% target recommended by the City Administrative Officer and $266 million below the 10% level suggested by many public finance experts.

Besides, in preparing the Budget eight months ago, Mayor Eric Garcetti, the Budget and Finance Committee chaired by Paul Krekorian, and the Herb Wesson led City Council already raided the Reserve Fund for $130 million.

The City also has the option to issue $100 million of Judgment Obligation Bonds to cover this projected deficit.  In City speak, this would “save” the City $100 million.  In reality, this bond offering would be dumping the sins of the past onto a future generation of Angelenos who would be burdened with annual debt service payments of $13 million for the next ten years.

The third (and preferred) alternative would be to allocate the $138 million in liability claims to the responsible departments who would then have to determine how to pay for the messes they created.  This would also have the added benefit of increasing the accountability of the Police Chief and other department managers as they would be responsible for the actions of their employees and the impact on their budgets.

Certain members of the City Council believe the City will be bailed out as revenues will exceed the budgeted General Fund receipts of $5.4 billion. But this opinion may be wishful thinking as budget revenues already represent a hefty 5% increase from the previous year.  Furthermore, revenues through the first four months of the fiscal year are off by $40 million because of lower property tax collections and lower revenues from the City Utility Tax levied on DWP Ratepayers.

This $100 million deficit does not include any real money for the City’s homeless initiatives or any appropriations or reserves related to the havoc from the El Nino storms that are expected to drench California this winter.

The Second Financial Status Report highlights the fact that the City, like many of its businesses and employers, is a victim of California’s legal system that is consistently ranked as the top “Judicial Hellhole” in the country.  This will result in cutbacks to an already tight City budget and should result in calls to reform our civil justice system, a move that will alienate the campaign funding plaintiff’s bar.   

For example, the $84 million hit for liability claims would fund the City’s homeless initiative, repair miles and miles of our lunar cratered streets, or allow the Planning Department to update the City’s outdated Community Plans. 

It also puts the Mayor and the Herb Wesson led City Council on notice that the City does not have the financial flexibility to introduce new initiatives unless it is willing to reallocate revenues, a painful process that will result in significant pushback from the targeted departments, or to outsource operations to more efficient service providers, a move that would cause the City’s unions to go ballistic. 

Over the next four months, the Mayor, the City Council, and the City’s budget mavens will be working on next year’s budget behind closed doors.  How will they cover the $100 million deficit and fund existing programs and new initiatives? How will they pay for higher pension contributions; the repair of streets, sidewalks, and parks; and its new labor contract?

Stay tuned.  2016 is already shaping up to be an interesting year.

 

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

-cw

 

 

CityWatch

Vol 13 Issue 103

Pub: Dec 22, 2015

LA WATCHDOG--In early July, our Department of Water and Power proposed $1.4 billion increase in our utility rates over the next five years.  This bump of over 30% is subject to the review and analysis by the Ratepayers Advocate prior to the approval of the politically appointed DWP Board of Commissioners, the Energy and Environment Committee, the City Council, and the Mayor. 

But after five months, we still do not have any report, in large part because the Department has not provided the Ratepayers Advocate and its expert consultants with definitive financial information detailing the rate case.  The City Attorney has also not produced the final ordinance that spells out the very important (as the devil is in) details of this complex rate increase. 

Fred Pickel, the Ratepayers Advocate, and his staff expect to issue their reports on the water rate increase, the power rate increase, and the Department’s compensation polices within the next two weeks, assuming they receive the necessary information from DWP and the City Attorney.  This will begin the political process to approve this unprecedented rate hike which is expected to be finalized by April 1, 2016.  However, the rate increase will be backdated to July 1, 2015, meaning that Ratepayers will be hit with a two year increase during the first year. 

While the Ratepayers Advocate’s report will analyze the proposed rate increases, it will also need to address the transparency of DWP’s operations.  This would involve detailing the Department’s financial relationship with the City and all of its departments, including the Port, Los Angeles International Airport, and Public Works and its Bureau of Sanitation.  

For example, there has been some scuttlebutt from Port employees about the high cost of the power generated by solar panels installed by inefficient DWP work crews. There are also rumors that the Port has failed to pay its DWP bill on a timely basis, meaning that the Ratepayers will have to make up this unacceptable shortfall. 

The report will also need to analyze the DWP’s multibillion dollar utility built solar program and whether it makes sense to outsource this very ambitious endeavor to more efficient, independent contractors.     

The Ratepayers Advocate will also need to review the Department’s involvement with the City’s One Water LA 2040 Plan to ensure that DWP is not getting soaked for very expensive (as in billions) stormwater projects that are the responsibility of the Bureau of Sanitation and other City departments. 

There also needs to be full disclosure on all “pet projects” that are not related to the core mission of the Department as well as all below market leases of DWP property to other City departments and favored nonprofit organizations.  This disclosure also includes “Special City Services” and how these costs are determined, especially as it relates to the massive overhead charges imposed by the City on such services as the inspection of fire hydrants by the Los Angeles Fire Department.    

Interestingly, the Ratepayers Advocate has commissioned a study of DWP’s compensation arrangements, including benefits, compared to other regional utilities.  This analysis, along with the benchmarking efforts of the Department, will be very controversial.  

No study would be complete without the discussion of the legality of the $273 million, 8% Transfer Fee given the recent class action lawsuits.  One interesting suggestion by Richard Moss, a former DWP Commissioner, and Gregory Lippe, a former chairman of the Valley Industry and Commerce Association, is to freeze all payments, including the Transfer and the City Utility Tax, from DWP to the City at its current level of around $650 million and invest the five year, $500 million surplus in DWP’s operations.   

The Ratepayers Advocate and DWP’s management must also outline the Department’s goals over the next five years and determine a process to monitor its progress.  One idea would be for the General Manager to publish a quarterly report within 60 days of the quarter’s end similar to one that is required by a public company.     

Over the last three years, the Ratepayers Advocate has been an excellent investment.  Pickel and his understaffed office have produced strong analytical work.  He has also developed a working relationship with the Department and City Hall which has allowed him to temper the proposed rate increase.  

This positive review is in spite of the unfounded, self-serving claims by the publicity hungry Santa Monica based Consumer Watchdog regarding the settlement of the class action lawsuit involving the botched introduction of the Customer Information System.

The major complaint involving the Ratepayers Advocate is the lack of outreach and his failure to use his position as a bully pulpit to protect our wallets.  On the other hand, it was and is important to preserve his relationship with the Department’s management and the politicians and bureaucrats that occupy City Hall.  

But now is the time for Fred Pickel, the Ratepayers Advocate, and his staff to sound off as they go to bat for the us, the Ratepayers, and our wallets. 

 

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

-cw

 

 

CityWatch

Vol 13 Issue 99

Pub: Dec 8, 2015

 

 

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