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Fri, Mar

LA Watchdog

Ratepayer Alert: DWP Board Set to Approve New IBEW Labor Agreement

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. 

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Our City Fathers are Ignoring LA’s Pension Elephant … and Why You Should Care

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?

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DWP Ratepayers Get Screwed … Thanks to the Mayor and the City Council

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. 

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Pet Project Alert: LA’s $2.7 Million Savings Account Program for Kids

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. 

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LA’s Budget: A Train Wreck

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. 

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Income from LA’s Airbnb Tax at War with Nervous Neighborhood Interests

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:  [email protected].)

-cw

Another Budget Busting Labor Contract on the Horizon

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:  [email protected].)

-cw

His Honor and the Grasshoppers Raid LA’s Rainy Day Funds

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:  [email protected].)

-cw

 

LA Times to LA City Hall: GET REAL

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:  [email protected].)

Pet Project Alert: LA Ponies Up Millions for Discovery Cube Deal

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:  [email protected].)

-cw

 

 

 

LA Mayor’s New Budget: River of Red Ink Despite $1.9 Billion More Revenue

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:  [email protected].)

-cw

Tax Angeles

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:  [email protected].)

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Time to Let the Sun Shine on DWP’s Labor Negotiations

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:  [email protected].)

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The Voters and the State Provided the Street Repair $$$ … Now, City Hall, Show Us the Street Repair Plan!

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:  [email protected].)

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La La Land Gimmicks Will Cost Angelenos $20 Million

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:  [email protected].)

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Controller Ron Galperin: The Skunk at the City Hall Garden Party

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:  [email protected].)

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LA’s Leaky Rainy Day Fund

LA WATCHDOG--The City Administrative Officer’s Third Financial Status Report dated March 16 paints a bleak picture of the City’s finances, including the previous sacrosanct Reserve Fund.  

For the current year, the City is looking at a $57 million deficit.  But this does not take into consideration the strong probability of lower revenues from property and sales taxes, taxes on DWP Ratepayers (the 10% Utility Users’ Tax and the illegal 8% Transfer Tax), departmental fees from the City’s proprietary departments and special funds, parking fines, and franchise fees.  These dings more than offset the growth in the hotel tax and the documentary transfer tax. 

The Report also indicates that next year’s budget gap is anticipated to be $224 million.  But even this projection for the fiscal year beginning on July 1 may be understated because of lower than anticipated revenues and the demand for increased services.  

One of the culprits in this year’s deficit is the explosion in legal liabilities as the City is anticipating spending $147 million in settlements and judgments, almost $80 million more than the budgeted liability of $68 million.  To cover these higher than anticipated losses, the City is hitting up the Reserve Fund for over $60 million. 

Unfortunately, the Reserve Fund no longer has a surplus that can be tapped unless it is a true emergency.  As of January 31, the Reserve Fund had dipped slightly below the minimum threshold of $279 million, an amount equal to 5% of General Fund revenues of $5.576 billion. 

To replenish the Reserve Fund, the City is pursuing the issuance of $70 million of Judgment Obligation Bonds.  But ev en with this infusion, the Reserve Fund may not be able to absorb this year’s losses, especially if revenues are lower than budgeted.  

This will also preclude the Mayor and the City Council from raiding the Reserve Fund.  

Over the last three years, the Mayor and the City Council have siphoned off $213 million from the Reserve Fund without blinking an eye.  

But were these financial transactions necessary given that City revenues have increased by $900 million over the last four years? 

Why did the Budget and Finance Committee chaired by Paul Krekorian permit this transfer from the Reserve Fund?  

Why did the Budget and Finance Committee allocate only $68 million for legal liabilities when the City Administrative Officer recommended a significantly higher amount? 

If the Reserve Fund had the $213 million that was drained from its accounts, the balance of our rainy-day fund would be almost $500 million, or 8.8% of the General Fund revenues. 

And if you toss in the Budget Stabilization Fund of $94 million, total reserves increase to $585 million, or a very healthy 10.5% of General Fund revenues, exceeding the 10% level recommended by Miguel Santana, our previous CAO.  

This is another case where the politically motivated spending policies of our Elected Elite trumped the long-term interests of the City.  This is reminiscent of their failure to fund the repair and maintenance of our lunar cratered streets, our broken sidewalks, and the rest of our deteriorating infrastructure; their unwillingness to engage in real pension reform; and their approval of budget busting labor contracts. 

We cannot trust Mayor Garcetti, the City Council, and the Budget and Finance Committee with our money.  

We need an independent Office of Transparency and Accountability to oversee the City’s finances and protect us from the Mayor and the City Council pursuing short term political goals that are not in the best long-term interests of the City and all Angelenos.

(Jack Humphreville writes LA Watchdog for CityWatch. He is the President of the DWP Advocacy Committee and is the Budget and DWP representative for the Greater Wilshire Neighborhood Council.  He is a Neighborhood Council Budget Advocate.  Jack is affiliated with Recycler Classifieds -- www.recycler.com.  He can be reached at:  [email protected].)

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To Hell with the Photo-Ops and Promises Mr. Mayor … Fix LA’s Streets!

LA WATCHDOG--Mayor Eric Garcetti is proposing to close part of the City’s $250 million budget gap for next year by using an estimated $50 million of Local Return money from Measure M, the permanent half cent increase in our sales tax that was approved by 71% of voters in November

While the bulk of the proceeds of this new tax are to be used to finance Metro’s ambitious capital expenditure program and its money losing operations, 17% of the proceeds are designated for “Local Return.” Under this program, funds are returned to the cities based on their population for the communities’ “eligible transportation related uses.”  These transportation needs include “transit, streets and roads, storm drains, Green Streets, Active Transportation Projects, Complete Streets, public transit access to recreational facilities, Transit Oriented Community Investments, and other unmet transit needs.” 

Importantly, these Local Return funds are meant to supplement existing programs and not to free up money for the General Fund and other programs. In other words, they are not to be used for deficit reduction. 

In recent interviews and during the campaign to pass Measure M, Garcetti said that these Measure M Local Return funds were to be used to fix, pave, or repair our streets.  

In the upcoming year, the Local Return from Measure M is expected to be about $50 million.  And over the next 40 years, the total haul is projected to be in the range of $5 billion based on Metro’s projections. 

The infusion of these Local Return funds represents an excellent opportunity to jump start the development and implementation of a comprehensive plan to repair and maintain our 28,000 lane miles of streets, considered to some of the worst in the country, and 900 miles of alleys.  A well-conceived long term plan will also go a long way in relieving congestion, the worst in the developed world per a recent article in The New York Times. 

The City’s current street repair program, dubbed the pothole patrol plan, is not working.  While City Hall tells us that the status of our streets has improved slightly because Street Services is budgeted to pave or repair 2,400 miles of roads this year, most Angelenos believe, based on experience, especially after the rains, that our streets have continued to deteriorate.  Furthermore, the pothole patrol plan neglects the more than one third of our streets that are rated D and F, meaning that they need to be either resurfaced or reconstructed, all at great expense. 

If the City combines the resources of the Local Return funds with the current expenditures of the Street Services and Transportation devoted to our roads, it can develop and implement a street repair program that over the next twenty years will make our streets some of the best in the nation.  

Now that is Back to Basics. Forget the photo-ops. Keep your promises. Fix LA’s streets!

(Jack Humphreville writes LA Watchdog for CityWatch. He is the President of the DWP Advocacy Committee and is the Budget and DWP representative for the Greater Wilshire Neighborhood Council.  He is a Neighborhood Council Budget Advocate.  Jack is affiliated with Recycler Classifieds -- www.recycler.com.  He can be reached at:  [email protected].)

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LA’s Future Clouded by Budget Unknowns

LA WATCHDOG--The City of Los Angeles is confronting a budget gap next year of “at least $250 million” based on Mayor Eric Garcetti’s comment to Larry Mantle, the host of KPCC’s (89.3) AirTalk.  

But this not very well publicized shortfall of at least $250 million may be optimistic. The City believes that the $245 million Power Revenue Transfer Tax (previously known as the 8% Transfer Fee) from the Department of Water and Power, which is the subject of a class action lawsuit, is legal and does not require voter approval pursuant to Proposition 26 (the Supermajority Vote to Pass New Fees and Taxes) that was approved by California voters in 2010.    

Garcetti did not offer any reasons for this staggering $250 million shortfall that exceeds the previously projected budget gap of $85 million.  Nor did he discuss any specific plans to reduce this gap other than to say that the City will rely on several new sources of revenue. 

But these new revenues are not for deficit reduction.  Rather, they are intended to augment existing programs.  This is certainly true for the $50 million of new “Local Return” money from Metro that is designated for the repair and maintenance of our lunar cratered streets. These kickback funds are the result of the passage of Measure M, the permanent half cent increase in our sales tax to fund Metro’s ambitious expansion plans and its ever-increasing operating deficits. 

He also said that he would not institute any new spending polices other than for the homeless, public safety, and the restoration of services.  But these new initiatives will cost north of $100 million.  So much for austerity.  

Underlying the $250 million budget gap is a significant increase in City’s legal liabilities and even greater shortfall in revenues.  Property and sales taxes are anticipated to be $50 million lower than expected while revenue from taxes on the DWP Ratepayers are off by approximately $75 million. 

There is something very fishy going on with the Power Revenue Transfer Tax because of the class action lawsuits that were filed in 2015. 

This year, the Power Revenue Transfer Tax was budgeted to be $291 million.  However, because DWP overestimated the Power System revenue by 10%, or $300 million, the Transfer Tax was only $264 million, a $27 million shortfall.  

For the upcoming year, the Transfer is projected to be $245 million (6.5% of Power System revenues), down from the previous projection of $300 million (8% of revenues).  This dip, despite DWP’s increase in revenues, gives credence to the scuttlebutt that City Hall has cut itself a sweet deal with the lawyers representing the plaintiffs in the class action lawsuit (Patrick Eck v. City of Los Angeles).    

Of course, the lawyers will make out like bandits. 

And the Ratepayers, rather than being reimbursed for over $1.5 billion in illegally collected taxes (not including interest) and abolishing the illegal Power Revenue Transfer Tax, will once again get the shaft as we will end up paying $245 million a year to the pay-to-play politicians who occupy City Hall. 

But this backroom settlement that was cut over two months ago may not pass legal muster.  Under Proposition 26, this so-called fee that is really a tax must be approved by the voters, a rumble that City Hall wants to avoid.  This may be the reason why the City has not announced this deal because they cannot figure out how to disenfranchise us by not placing this tax on the ballot for our rejection or approval. 

If this crooked deal does not pass the smell test, our friends that occupy City Hall will go ballistic as the projected budget deficit will balloon to $500 million.  

But this sea of red ink is not our fault as the Mayor and the City Council have racked up a $250 million budget gap despite an increase in General Fund revenues of $1 billion.  City Hall has also been on notice for years that the Power Revenue Transfer Tax is illegal, but failed to address the issue in a rational manner. 

City Hall will no doubt ask us to approve this tax.  But what do we get in return?  Maybe it is our turn to ask that in return for approving this new tax, the City will agree to place on the ballot a charter amendment that will finally require our City to go Back to Basics and Live Within Its Means. 

Hold on as we are in for a wild ride.  Budget Madness begins on April 20 when the Mayor presents his new budget to Angelenos. 

 (Jack Humphreville writes LA Watchdog for CityWatch. He is the President of the DWP Advocacy Committee and is the Budget and DWP representative for the Greater Wilshire Neighborhood Council.  He is a Neighborhood Council Budget Advocate.  Jack is affiliated with Recycler Classifieds -- www.recycler.com.  He can be reached at:  [email protected].)

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Citizen Advocates Demand Balanced, Transparent City Budget

LA WATCHDOG--One of the Priority Outcomes of Mayor Eric Garcetti s Back to Basics agenda was that the City of Los Angeles would “live within its financial means.” 

But this is not the case. 

The City is grappling with a potential deficit of $245 million for this fiscal year that ends on June 30 and a budget gap of at least $250 million for the fiscal year that begins on July 1.  This is despite revenues being up over $1 billion since Garcetti became Mayor. 

These deficits are understated.  They do not include adequate funds to repair and maintain our streets, sidewalks, parks, and the rest of our deteriorating infrastructure.  They lowball the pension contributions that are determined using an overly optimistic investment rate assumption that “save” the City an estimated $500 million a year.  

The impact of these deferrals is to dump an even larger financial burden on the next generation of Angelenos.  

Projections for the next four years do take into consideration future salary increases for the police, civilian employees, and the firefighters. 

It is not a pretty picture.  

On March 8, the Budget Advocates, a volunteer group of citizens representing the charter authorized Neighborhood Councils, met with Mayor Garcetti and members of his budget team to discuss their annual White Paper and their “Back to Basics” Plan which includes the following recommendations. 

  • Develop and implement a seven-year operating and financial plan for the City.  This is standard operating procedure for an enterprise with revenues of over $8 billion a year and 32,000 civilian and sworn employees. 
  • Address the Structural Deficit (where expenditures increase faster than revenues) by refraining from entering into any labor agreement or approving any new programs or initiatives that will result in future budget deficits. 
  • Require that ALL projects take into account the costs and savings over the entire life of the project, including ancillary costs and savings incurred by other City entities and stakeholders. 
  • Develop and implement a long-term plan to fix our streets along the lines of the Save Our Streets LA Measure that was proposed in April 2014. 
  • Implement a long-range plan to grow the City’s economy by developing new business friendly policies that encourage employers to move to LA or to remain and invest in LA. 
  • Benchmark the efficiency of the City’s departments and services and consider outsourcing projects to independent contractors. 
  • Appoint an experienced Chief Operating Officer/City Manager to oversee and coordinate the management of the City’s many departments and to improve their operating efficiency.    

In addition, the Budget Advocates once again urged the Mayor and the City Council to implement the following excellent budget recommendations of the LA 2020 Commission that were endorsed by City Council President Herb Wesson at a well-attended press conference on April 9, 2014 at the California Endowment. 

  • Create an independent “Office of Transparency and Accountability” to analyze and report on the City’s budget, evaluate new legislation, examine existing issues and service standards, and increase accountability. 
  • Adopt a “Truth in Budgeting” ordinance that requires the City to develop a three-year budget and a three-year baseline budget with the goal of understanding the longer-term consequences of its policies and legislation.  
  • Establish a “Commission for Retirement Security” to review the City's retirement obligations to promote an accurate understanding of the facts and develop concrete recommendations on how to achieve equilibrium on retirement costs within five years.  This Commission will also address the Buffett Rule and the investment rate assumptions of the pension plans. 

Unfortunately, these recommendations that were designed to shine the sun on the City’s finances and operations have never seen the light of day. 

In addition, the Budget Advocates have developed a list of revenue producing ideas for the General Fund.  This resulted in a discussion about the specific suggestions and the City’s need for additional revenue to address our infrastructure, service levels, affordable housing, and services to the homeless.  

The Budget Advocates also submitted reports on 26 of the City’s departments.  They were based on numerous in person meetings with department heads that allowed the Budget Advocates to gain a better understanding of the departments and the overall operations of the City.  These reports also contain recommendations specific to the departments. 

The Mayor, recognizing the time, effort, and dedication of the Budget Advocates, will ask the City Administrative Officer and his budget team to report back on the White Paper and its findings and recommendations.  Hopefully, this response will be shortly after the release of next year’s budget on April 20 so that Budget Advocates have ample time to prepare for the Budget and Finance Committee hearings on the budget.  

The development of and the adherence to a long term operating and financial plan, the implementation of a Back to Basics Plan, the adoption of the recommendations of the LA 2020 Commission, the develop of new sources of revenue, and an improved business and investment environment will result in increased revenues for the City that will allow it to eliminate the Structural Deficit, to address its infrastructure needs, and to begin the proper funding of its pensions. 

By increasing the transparency onto the City’s complex operations and finances and by implementing policies that require the City to “live within its means,” City Hall will begin the process of restoring Angelenos’ trust and confidence in its elected officials.

 (Jack Humphreville writes LA Watchdog for CityWatch. He is the President of the DWP Advocacy Committee and is the Budget and DWP representative for the Greater Wilshire Neighborhood Council.  He is a Neighborhood Council Budget Advocate.  Jack is affiliated with Recycler Classifieds -- www.recycler.com.  He can be reached at:  [email protected].)

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