LA WATCHDOG

LA WATCHDOG--Despite General Fund revenues being up by over $1 billion since Eric Garcetti became our Mayor, the City Administrative Officer indicated in a January 6 memo that the “combined potential deficit [for the fiscal year ending June 30, 2017] currently stands at $245 million.” 

You have to be kidding.  A billion bucks and these jokers cannot balance the budget. 

The budget is being hammered by higher than anticipated expenditures and lower than expected revenues.  But there are not many real operational solutions since the Mayor, the Personnel Committee headed by Paul Koretz, and the City Council are not even willing to considering laying off or furloughing unionized employees who represent the bulk of City budget expenditures.   

Spending is anticipated to be $70 to $80 million over amounts approved by the City Council and Mayor Garcetti in June.  The primary culprit is legal settlements and verdicts against the City that are more than double the budgeted $67 million. But this budgeted amount was significantly less than the amount recommended by the City Administrative Officer (rumored to be $120 million) last April when Garcetti presented his budget to the City Council. 

The revenue shortfall (including those at risk) is projected to be $165 million, consisting of lower than expected reimbursements from the proprietary and special departments, lower taxes on DWP Ratepayers as Power System revenues are below projections, and lower collection of property and sales taxes. 

The CAO has proposed a number of nickel and dime solutions which, when taken as a whole, may help eliminate some of the budget deficit.  These include curtailing any new expenditures, limiting hiring, increasing revenues by collecting the hotel tax from short-term rental sites in addition to AirBnb, investigating the revenue potential of billboards on City property (subject to the approval of the City Council), and being reimbursed for services by major event venues. 

As expected, the CAO has proposed that the City proceed with a ten year Judgment Obligation Bond of up to $70 million. The proceeds from this offering would be used to replenish the Reserve Fund so that it would have the capacity to help close the budget deficit. 

But this financial strategy of using long term debt to finance operating losses highlights the financial follies that have been dumped on us by Garcetti, the Paul Krekorian Budget and Committee, the Personnel Committee chaired by Paul Koretz, and the Herb Wesson led City Council.  They have steadfastly refused to follow the many common sense recommendations of Miguel Santana, the City Administrative Officer who, unfortunately, is leaving to become the Chief Executive Officer of the troubled Los Angeles County Fair Association.    

The City will muddle through this financial mess by issuing Judgment Obligation Bonds, developing new sources of revenues, selected budget cuts, fewer hires, and/or raiding the Reserve Fund and maybe even the previous sacrosanct Budget Stabilization Fund.  But it will not be pretty, especially when we have to listen to all the excuses of the City Council and the Mayor.  

This financial fiasco demonstrates why the City Council and Garcetti need to place on the ballot a LIVE WTHIN ITS MEANS* charter amendment so that voters have the opportunity to either accept or reject budget reform. 

Finally, Garcetti and Personnel Chair Paul Koretz do not deserve to be re-elected in March because they have failed the citizens of Los Angeles by refusing to adopt realistic budget and personnel policies that will allow the City to balance its budget and provide basic services to all Angelenos. 

Time for a change.  Throw the bums out.  

*The “Live Within Its Means” charter amendment will require the City to develop and adhere to a Seven Year Financial Plan; to pass three year balanced budgets based on Generally Accepted Accounting Principles; to prohibit any labor contracts that result in future budget deficits; to benchmark the efficiency of its operations; to fully fund its pension plans within twenty years; to implement a twenty year plan to repair and maintain our streets, sidewalks, and the rest of our infrastructure; and to establish a fully funded independent Office of Transparency and Accountability to oversee the City’s finances and operations.

(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 WATCHDOG--In 2013, Mayor Eric Garcetti told us that the revitalization of the 11 mile stretch of the Los Angeles River from Griffith Park to the Arts District was projected to cost $1.1 billion, of which the City’s share was $432 million.  

In 2015, the cost increased to $1.4 billion, but our share for the 11 mile revitalization ballooned to $1.2 billion as federal regulations limited the Army Corps of Engineers contribution to $200-$300 million.  While the City had no clue how it was going to come up with its share, the City Council authorized the City Administrative Officer to issue a letter to Army Corps of Engineers stating the City will have the financial capability to meet its cost sharing obligations.   

In late 2016, the revitalization plan was expanded to include the first 32 miles of the 51 mile long Los Angeles River that flow through the City, beginning in Canoga Park and ending at the Vernon line.  But once again, the cost ballooned, this time to an estimated $7 billion. The cost per mile also increased to $219 million, up 72% from the $127 million per mile for the 11 mile revitalization plan. 

Importantly, EIFDs are not permitted to fund operating expenses such as ongoing maintenance and repairs, adding another level of expense to the river revitalization plan that has not been considered.   

Consistent with past practice, Garcetti has not developed a plan to finance this aspirational, multi-decade project.  However, one alternative that is being considered by the City Council and the Economic and Workforce Development Department (“EWDD”) is Enhanced Infrastructure Financing Districts (“EIFD”), a new financing vehicle authorized by the State in 2015 that allows local governments to fund capital projects by diverting “incremental” property tax revenues from the City to an EIFD to finance the payment of interest and principal on long term bonds. 

In many ways, EIFDs are intended to replace the controversial and often corrupt Community Redevelopment Agencies by limiting their taxing authority to ‘consenting” entities (in this case the City and County, but not LAUSD) and requiring a 55% vote of the EIFD voters to approve the issuance of bonds. 

The recent report prepared at the request of EWDD recommends establishing nine EIFDs along the 32 miles of the river that would be entitled to collect 75% of the incremental property taxes from properties within one mile of the River due to the City and County (52% of the total as any incremental tax revenues due LAUSD would not be included) that exceed the existing assessed value.   This amount would then be reduced by interest payments, interest reserves, and delinquency reserves.  And then another 20% would be set aside for affordable housing. 

Over the next 30 years, the report indicated (but only after massaging the massive amounts of data) that over $7.6 million in incremental tax revenues would be available to the nine river EIFDs.  But after financing costs (interest, interest coverage, and reserves) and the affordable housing set aside, only $1.5 billion (20%) is available for investment in river related projects.  This is an unacceptable proposition that is dependent on issuing massive amounts of debt.  

The report also indicates that the EIFDs will not increase taxes of the properties in the district. While true, it will divert the incremental property tax revenue from the City’s General Fund, resulting in less money for services for those who live in the remaining 88% of the City based on the assessed value of all City property. Again, this is not an acceptable proposition since the City’s voters do not have a say in the matter. 

There are also issues of transparency and accountability that need to be addressed as the EFIDs may have a life span of up to 45 years and may have the ability to increase fees and assessments without the approval of the voters in the districts or the City. 

What is not to like about a revitalized Los Angeles River?  But does the river revitalization plan take priority over repairing our lunar cratered streets, our parks, and our urban forest; public safety (LAPD and LAFD); affordable housing and the homeless; and the restoration of City services.  And should the City develop a pay as you go revitalization plan instead of issuing billions in new debt?   

Before proceeding with the $7 billion river revitalization plan and the establishment of EIFDs, the City needs to reach out to the entire City and its Neighborhood Councils to determine the City’s priorities and educate the public on the revitalization plan and the intricacies of the Enhanced Infrastructure Financing Districts.

(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 WATCHDOG--At its December 6 meeting, the politically appointed Board of Commissioners of our Department of Water and Power approved the transfer of $264 million of Ratepayer money from DWP’s Power System to the City coffers without any discussion, once again demonstrating their disregard for the Ratepayers and our hard earned cash.  But this is standard operating procedure as witnessed by the Board’s recent blessing of the above market $41 million lease for the City owned Figueroa Plaza and the uneconomic $12 million Rooftop Solar Program. 

The Commissioners also knew that the $264 million 8% Transfer Fee is the subject of a class action lawsuit that alleges that this fee is really a tax as it exceeds the cost of providing electrical service to the Ratepayers.  This violates the California constitution because the tax has not been approved by the City’s voters. 

But the Board does not bear the sole responsibility for its failure to stand up for the best interests of the Ratepayers.  Behind the scenes is Mayor Eric Garcetti, calling the shots, pulling the strings, and directing the Commissioners to approve actions that help satisfy City Hall’s addiction to our cash. 

But this $264 million transfer tax is $27 million less than budgeted $291 million, which, when combined with the projected budget deficit of $82 million for this year, will result in red ink of $110 million. And this does not include the projected $35 million shortfall in property tax revenues. 

To fund this deficit, the City is considering issuing a $70 million Judgment Obligation Bond and/or levying a special assessment on the Department of Water and Power.  

The City is desperate to settle the class action lawsuit in a way that will preserve all or most of the Transfer Tax without giving us the opportunity to vote on this tax.  Rumors from well-placed sources indicate that the City is close to settling the class action litigation where the City will cap the transfer at $250 million a year without giving the voters the opportunity to approve or reject this tax. 

This, however, will not be without a fight as taxpayers will protest any settlement that does not require a vote. 

The purpose of this pushback is not to break the City, but to reform the City’s budget process.  

As an incentive for voters to support the $250 million Transfer Tax (the equivalent of a half cent increase in our sales tax or a 5% bump in our property taxes), the City should also place a LIVE WITHIN ITS MEANS* charter amendment on the ballot.  Each measure would require voter approval of the other ballot measure. 

While we would all like to “save” $250 million a year, this is a fair price to pay for real budget reform, especially given that our fiscally irresponsible Mayor has been unwilling to confront the City’s Structural Deficit that continues to produce rivers of red ink, lunar cratered streets, and massive unfunded pension liabilities that will eventually overwhelm the City’s budget.  

Here’s to Real Reform and a Happy, Healthy, and Wet 2017.    

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*The “Live Within Its Means” charter amendment will require the City to develop and adhere to a Seven Year Financial Plan; to pass three year balanced budgets based on Generally Accepted Accounting Principles; to prohibit any labor contracts that result in future budget deficits; to benchmark the efficiency of its operations; to fully fund its pension plans within 20 years; to implement a 20 year plan to repair and maintain our streets, sidewalks, and the rest of our infrastructure; and to establish a fully funded independent Office of Transparency and Accountability to oversee the City’s finances and operations.

(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 WATCHDOG--The City is looking at an $82 million year end deficit according the Second Financial Status Report prepared by the City Administrative Officer.  This gap does not include the possibility of lower revenues from the utility users’ tax, the sales tax, parking fines, and the 8% Transfer Tax from our Department of Water and Power.  

One of the major reasons for this shortfall is that payouts from the Liability Claims Account are expected to be “at least” $135.5 million, $67 million over $68.5 million in the City’s Adopted Budget that was blessed by the City Council in May. 

Included in these payouts is a jury verdict for an eye popping $23 million in a wrongful death suit against the deep pocketed City for its failure to repair a dangerous intersection in San Pedro. The City intends to finance this cash payout by raiding its Reserve Fund that can ill afford this hit. 

And on Tuesday, the City Council approved the payment of $8 million to settle lawsuits involving three men who were shot and killed by LAPD officers.  And once again, the Reserve Fund will end up footing the bill. 

According to City Hall sources, there are a number of other lawsuits involving the Police Department that could cost the City big bucks.  But rather than take the risk of being slammed by huge verdicts from runaway juries, the City, viewed as a deep pocket by the plaintiff ‘s bar, will elect to settle many of these cases for what appears to be outrageous amounts, but tiny compared to the potential exposure. 

The City is considering financing the $67 million of excess settlements by issuing up to $70 million of Judgment Obligation Bonds.  These bonds, which must be approved by the State and are payable over a maximum of ten years, would shore up the Reserve Fund’s liquidity, an important component in protecting the City’s high quality bond ratings. 

At the same time, the bonds are paying for what is realistically considered an operating expense, allowing the City to continue to “kick the can down the road,” dumping yesterday’s obligation on tomorrow’s taxpayers. 

A classic example is the $16 million judgment for the 2007 May Day demonstrations that was financed with a 2010 Judgment Obligation Bond that will not be paid off until 2020, 13 years after this incident involving the LAPD and 295 demonstrators in and around MacArthur Park. 

Unfortunately, this low ball budgeting scam is not an isolated event.  Last year, the City budgeted $54 million for Liability Claims, but ended up forking over $110 million in settlements.  

In the future, the City needs to develop a realistic budget for it Liability Claims Account instead of relying on the Reserve Fund and Judgment Obligation Bonds.  

At the same time, the City should make the Police Department and every other City department “own” its liabilities rather than relying on the General Fund and the Reserve Fund.  This would force the Police Chief, the Fire Chief, and all department heads to focus on preventing potential liabilities.  

Finally, the City should use its political clout in Sacramento to implement tort reform as California is considered one of the country’s top “Judicial Hellholes.”  

But maybe we asking too much of Mayor Eric Garcetti and the Herb Wesson led City Council.  After all, they have our wallets to raid.  And they would not want to alienate the campaign funding lawyers who make an excellent living by suing our cash strapped City. 

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

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LA WATCHDOG--The Department of Water and Power’s pension plan and its plan to cover Other Post-Employment Benefits (“OPEB”) have unfunded liabilities of almost $4.8 billion, an obligation that the Ratepayers will be required to fund.  

The Department of Water and Power pension plan is only 84% funded as assets of $10.3 billion are about $2 billion short of its future obligations of $12.3 billion. 

At the same time, the OPEB obligations are only 75% funded as assets of $1.75 billion are about $600 million less that its future obligations of $2.3 billion. 

Combined, DWP retirement obligations are only 83% funded, representing an unfunded liability of $2.5 billion. 

That’s the good news. 

When DWP finishes cooking the books and marks the assets to their true market value and assumes a more realistic investment rate assumption of 6.25%, the unfunded liability soars to $4.8 billion, representing an unhealthy funded ratio of 71%. 

DWP’s retirement plans are also very expensive to maintain. This year, the Department is expected to contribute $550 million to the two plans, an amount equal to over 12.5% of Department revenues and equal to almost 60% of its payroll.  The City, on the other hand, contributes less than 30% of civilian workers’ salaries to the Los Angeles City Employees’ Retirement System. 

During the last year, the unfunded liability increased by 50% ($1.6 billion) to $4.8 billion, in large part because the return on invested assets was less than 1% (0.82%), a considerable shortfall from the overly optimistic investment rate assumption of 7.5%.  At the same time, the annual contribution will increase to 60% of projected payroll, up from less than 50% the previous year. 

DWP, to its credit, has been making some progress. 

Several years ago, the Department contributed $600 million to fund a portion of its OPEB obligations, unlike the County and the State who have failed to fund any of this ever increasing liability.  As an aside, the City has been funding a portion of this obligation for almost 20 years.  

In the past year, it lowered its investment rate assumption to 7.25% even though it resulted in a higher unfunded liability and increased contributions. 

The Department and IBEW 18 also agreed to establish a new pension tier with lower benefits for employees who were hired after January 1, 2014.  This resulted in lower annual contributions as a percentage of the payroll. 

But even with these changes, DWP’s retirement plans are not sustainable as the investment returns on the stock and bond portfolios are expected to be in the range of 6% to 6.5%, lower than the targeted rate of return of 7.25%.  Furthermore, the investment rate assumption does not provide for the funding of the $4.8 billion unfunded liability which will continue to compound.  At the same time, annual benefits of this mature pension plan will exceed contributions by the Department and its employees. 

This shortfall will eventually be funded by the hard pressed Ratepayers who are already being smacked with a five year, $1 billion rate increase.  

Rather than speculate about the status of DWP’s retirement plans, the Board of Commissioners should require the Department, with the assistance of the Ratepayers Advocate and the Neighborhood Councils, to follow the recommendation of the LA 2020 Commission to establish an independent and transparent Commission on Retirement Security to review the DWP’s retirement obligations in order to promote am accurate understanding of the facts, to report on employment costs in various categories, and to develop concrete recommendations on how to achieve equilibrium on retirement costs by 2020. 

Is this too much to ask of the Garcetti appointed Commissioners?

(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 WATCHDOG--At the November 15 meeting of Board of Water and Power Commissioners, President Mel Levine, Vice President Bill Funderburk, and Jill Banks Barad voted to approve the $13 million Solar Rooftop Program despite the lack of any financial analysis.  But the absence of any definitive information is why Christina Noonan and Michael Fleming stood their ground and opposed this feel good, politically motivated project because there were too many unanswered questions and that it was obvious that this deal was a real stinker and was and is not in the best interest of the Ratepayers. 

Under this pilot program, our Department of Water and Power will finance, install, and maintain 1 megawatt (1,000 kilowatts) of new photovoltaic solar power on the rooftops of 400 single story, owner occupied homes in low income and underserved areas of the City.  In return, the homeowner will receive $30 a month ($360 a year) for the next 20 years pursuant to a one sided contract with the Department. 

Importantly, all the electricity produced by these rooftop solar systems will not be used by the homeowners, but will be pumped into the DWP grid and will help the Department met its renewable energy mandates of 33% by 2020 and 50% by 2030. 

But the economics of this deal stink. 

Over the next 20 years, DWP is expected to spend almost $13 million on this pilot project.  This includes $4 million for IBEW labor crews to install the photovoltaic systems over the next four years, $6 million for ongoing IBEW labor, and almost $3 million for customer lease payments.  Including the cost of borrowed money, the cost per kilowatt hour is almost 50 cents, 5 times more expensive than DWP’s purchased wholesale solar alternatives and over 3 times more expensive than the retail price of 16 cents we are charged on our ever increasing bimonthly bills. 

But it gets worse if you assume modest levels of overhead and insurance to repair damaged rooftops.  Then the price per kilowatt hour increases to 75 cents. 

But that’s not all folks!  If there are cost overruns, a common occurrence for DWP / IBEW built solar projects, the price soars to a mindboggling $1.00 per kilowatt hour.  This is more than 10 times the wholesale rate for solar power and more than 6 times the retail rate.  

And this does not include the illegal 8% Transfer Fee! 

The Board tried to justify this wildly uneconomic deal by relying on the new Equity Metrics Date Initiative claiming that the program was addressing the “solar access disparity” in the City.  But the supporting data that was prepared by the Los Angeles Alliance for a New Economy, a labor dominated organization, is unavailable and does not appear to take into consideration the sizeable investment that environmentally conscious homeowners in higher end neighborhoods have made in rooftop solar systems that have a very low return on investment.  

The Solar Rooftop Program is also a pet project of IBEW Union Bo$$ d’Arcy as 60% to 70% of the cost will be for IBEW labor.  And if for some strange reason this program manages to survive, the anticipated 40 megawatt project will cost Ratepayers over $700 million and be a cash cow for the IBEW.  

Mayor Eric Garcetti was also complicit in this Solar Rooftop Program as he approved this boondoggle pursuant to his Executive Directive No. 4 that was issued on June 24, 2014.  

With friends like Eric Garcetti and his three politically appointed Commissioners, Mel Levine, Bill Funderburk, and Jill Barad Banks, picking our pockets, who needs enemies? 

(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 WATCHDOG--Earlier this week, Miguel Santana, our highly regarded City Administrative Officer, shocked the City when he announced that he will become the next Chief Executive Officer of the Los Angeles County Fair Association, the controversial nonprofit organization that runs the Fairplex on County owned land in Pomona. 

But in July of 2009, everybody thought Miguel had lost his marbles when he agreed to be the City Administrative Officer for the City of Los Angeles. After all, the City was projecting a $2 billion river of red ink over the next two years. 

Why would he want to work for the City and report to the 15 bickering nincompoops on the City Council and fiscally irresponsible Mayor Antonio Villaraigosa, who, along with City Council President Eric Garcetti, approved an overly generous, unsustainable five year, 25% raise for the City’s civilian workers just as the economy was tanking in 2007.  

And then Santana, the new kid on the block, picked a fight with the campaign funding leadership of the City’s powerful civilian unions by questioning the economics of the Early Retirement Incentive Program that would have cost the civilian pension plan (and therefore the City and its taxpayers) $600 million over the next 15 years.  

But this was just the opportunity that Santana envisioned after he received a Master in Public Administration from Harvard’s Kennedy School of Government in 2005.   

Over the next several years, it was rough sledding as the City was unable to eliminate its Structural Deficit, where personnel expenditures grew faster than revenues. But there was meaningful progress, year after year, despite the constant interference by our Elected Elite. 

The civilian unions and the City split the cost on the Early Retirement Incentive Program. 

The City was able to spread out the five year, 25% wage increase over seven years, although there was considerable squawking from the unions about all their “sacrifices.”  

There was modest pension reform that slowed the rate of growth in the unfunded pension liability.  

There were tough decisions as the City was forced to cut projected expenditures year after year to balance the budget.  There was even some cooking of the books to balance the budget when the City “banked” police overtime and deferred the maintenance of our streets.  

The Structural Deficit became more manageable as the annual anticipated budget gap dropped year after year, from over $300 million in 2011-12 to under $100 million for the upcoming fiscal year beginning July 1, 2017.  

Santana helped kill some boneheaded plans, including Villaraigosa’s scheme to sell the City’s parking garages to pay for every day operating expenditures. 

Santana, the City’s equivalent of a Chief Financial Officer, also earned the trust of the investment community (who purchased the City’s bonds) and the credit rating agencies by being open and transparent about the City’s finances and its challenges and building a respectable Reserve Fund for emergencies and contingencies.  

There were also situations where he put the City interests before those of the citizens.  For example, he negotiated the settlement of the $1 billion class action lawsuit involving the Telephone Users’ Tax for a nickel on the dollar.  But in his defense, we would have paid the bill, one way or the other.  But it represented an opportunity to require the City to place on the ballot a “Live Within Its Means” charter amendment to entice us to approve a new tax to cover this shortfall. 

He is also negotiating the settlement of class action litigation involving the illegal 8% Transfer Fee from DWP’s Power System to the City’s General Fund, capping the annual transfer at less than $250 million and waiving past liabilities that are north of $1.5 billion.  But the question remains whether the proposed transfer needs to be approved by the voters pursuant to Proposition 26.  

Miguel also earns kudos as a manager of his department.  He has developed a team of highly qualified, trust worthy individuals who have served as a significant resource for the City Council, the Mayor, and the managers of the City’s departments.  

The City still faces significant financial hurdles: a Structural Deficit of close to $100 million next year; an unfunded pension liability of $15 billion that has the possibility of doubling over the next ten years; deferred maintenance north of $10 billion to repair our streets, sidewalks, parks, and the rest of our deteriorating infrastructure; aggressive unions seeking raises exceeding the rate of inflation; and spending pressures from the Mayor and City Council who are unwilling to reform the City’s broken finances. 

Of all the people at City Hall, there was nobody who I trusted more than Miguel.  I will miss him, his intellect, his rigorous analysis, his directness, his openness, his hard work, his modesty, and his integrity.  If not for Miguel, I hate to think of the mess we would be facing.  

Thank you, Miguel. 

(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 WATCHDOG--Our Enlightened Elite who occupy Los Angeles City Hall tell us that pension reform is not necessary.  After all, the recent actuarial report for the Fire and Police Pension Plan indicated that its $19 billion retirement plan was 94% funded as of June 30, 2016.  

But as we all know, figures never lie, but liars figure, especially when it involves the finances of the City of Los Angeles. 

The City will say that a pension plan that has assets equal to 80% of its future pension obligations is in good shape.  Baloney!  Pension plans should aim to be 100% funded, especially in down markets.  And in today’s bull market, where the Dow Jones Industrial Average is hitting record highs, the pension plan should be 120% funded so that it can withstand another bear market. 

Even at the 94% funded ratio, the unfunded pension liability for the retirement plan is pushing $1.2 billion, not exactly chump change when compared to the projected payroll of $1.4 billion for the 12,800 active cops and firefighters. 

But there is more bad news that is buried in the opaque actuarial reports that, when pieced together and analyzed, reveals that the overall Fire and Police Pension Plan is over $6 billion in the red and that only 75% of its future obligations are funded.  

The Fire and Police Pension Plans are also responsible for Other Postemployment Benefits (“OPEB”) which covers medical benefits for retirees.  But the $3 billion of OPEB obligations are less than 50% funded, resulting in an additional $1.6 billion in unfunded liabilities. 

The City is also cooking the books by “smoothing” the actual gains and losses in its investment portfolio over a seven year period.  This little trick is covering up a $600 million hit to its investment portfolio. 

Finally, if the newly calculated liability (that includes adjustments for OPEB and smoothing) of $3.4 billion (85% funded) is adjusted to reflect the more realistic investment rate assumption of 6.5% (as recommended by Warren Buffett), the unfunded pension liability soars to $6.25 billion and the funded ratio plummets to 75%.  

When combined with the $9 billion liability of the Los Angeles Employees’ Retirement System, the City’s total unfunded pension liability exceeds $15 billion.  And this liability is expected to double over the next ten years based on realistic rates of return that are in the range of 6% to 6.5%.  

But what are Mayor Eric Garcetti, City Council President Herb Wesson, Budget and Finance Chair Paul Krekorian, and Personnel Chair Paul Koretz doing to address the single most important financial issue facing the City? 

Nothing! Absolutely nothing other than put their heads in a potato sack and hope that a robust stock market will make the $15 billion problem go away.  

They have ignored the recommendations of the LA 2020 Commission to form a Committee on Retirement Security to review and analyze the City’s two pension plans and develop proposals to “achieve equilibrium on retirement costs by 2020.” 

Krekorian and Koretz made the bone headed suggestion to raise the investment rate assumption to 8% so that the City would be able to lower its annual required pension contributions to the underfunded pension plans, allowing more money for union raises.  

Wesson has not even created a Council File for the pension and budget recommendations of the LA 2020 Commission. 

But the real culprit is Garcetti who has refused to address the pension mess that will eventually become a crisis.  He has not asked his political appointees on the two pension boards to initiate a study of the pension plans and the City’s ever increasing contributions that now devour 20% of the City’s General Fund budget.  He has refused to contest the State’s Supreme Court “California Rule” which does not allow the City to reform the pension plans by lowering future, yet to be earned benefits.  

Rather than look out for the best interests of the City and all Angelenos, he continues to kiss the rings of the campaign funding union leaders who are vital to his political ambitions. 

The City’s lack of openness and transparency and its unwillingness to address its ever growing, unsustainable $15 billion pension liability can only be categorized as a major league cover up that should be front and center in the upcoming March election.  

Where’s Eric?

(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 WATCHDOG--The County of Los Angeles has prided itself on being better managed than the City of Los Angeles.   

In 2007, Mayor Antonio Villaraigosa and the Eric Garcetti led City Council approved a five year labor contract that granted the City’s civilian employees a 25% raise.  While this contract was based on wishful thinking from the beginning, it turned into an unmitigated mess when the recession smacked the City’s unrealistic revenue projections, resulting in huge budget deficits.  To balance its budget, the City reduced services, furloughed workers, dumped over 1,600 employees (and their unfunded pension liabilities) on our Department of Water and Power, laid off almost 500 employees, and implemented the $600 million Early Retirement Incentive Program for 2,400 senior employees. 

The County, on the other hand, did not grant any meaningful raises during this period, and, as a result, did not have to cut services or furlough or layoff its employees in order to balance its budget. 

The Supervisors also believe that the County’s pension plan, the Los Angeles County Employees Retirement Association, is in better shape than the City’s two pension plans, the Los Angeles City Employees Retirement System and the Los Angeles Fire and Police Pension Plans.

On the surface, this appears to be the case.  

As of June 30, 2016, preliminary estimates (using the overly optimistic investment rate assumption of 7.5%) indicate that the County’s $58 billion plan is 83% funded with a shortfall of $10 billion.  On the other hand, the City’s $43 billion of future obligations are only 77% funded, resulting in an unfunded liability of $10 billion.  

At the same time, the County pension plan has 94,000 active members, 2½ times the 37,000 active members under the City’s much more generous plans.  

However, when the County’s $31 billion of unfunded liability for Other Post-Employment Benefits (primarily retiree medical benefits) (“OPEB”) are considered, the County’s unfunded liability soars to over $40 billion, resulting in a funded ratio of a very unhealthy 55%.  This is significantly lower than the City’s 77% funded ratio which includes its OPEB obligations. 

Over the years, the County has failed to set aside any real money to fund its OPEB obligations, resulting in a funded ratio of less than 2%.  On the other hand, the City, to its credit, has been making its annual required contributions since the late 1980’s, resulting in unfunded OPEB liability of “only” $2.1 billion and a funded ratio north of 60%. 

[Note: Few governments have funded any of their Other Post-Employment Benefits, including the State of California which has an unfunded OPEB liability of a whopping $71 billion.] 

If the Supervisors were to properly fund its Other Post-Employment Benefits, the annual required contribution will be in excess of $2.1 billion.  But by ignoring this very real, snowballing obligation, the Supervisors are using these false “savings” to fund the County’s bloated bureaucracy, increases in salaries and employee benefits, additional social services, and to meet the demands of the campaign funding leaders of the County’s public unions. 

When the unfunded pension liability is adjusted to reflect a more realistic investment rate assumption, the County has a $50 billion liability that has the potential to crowd out essential services. 

But will the Supervisors address this $50 billion mess where the facts, issues, and recommendations for financial sustainability are discussed in an open and transparent manner?  Or will they follow the example of Mayor Eric Garcetti and the Herb Wesson led City Council who have ignored the excellent recommendations of the LA 2020 Commission and who continue to kick the $16 billion can down our lunar cratered streets? 

[Note: For each of the 4 million Angelenos, the total pension liability is $9,000, $5,000 for the County and $4,000 for the City. This does not include LAUSD or the State.]

(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 WATCHDOG--According to the opaque actuarial report for the Los Angeles City Employees’ Retirement System (“LACERS”), 2016 was a good year.  The return on its investment portfolio was 7%, the unfunded pension liability of $5.5 billion was $200 million lower than the previous year, the funded ratio “improved” to 72.6% from 70.7%, and the City’s 2017-18 Annual Required Contribution (“ARC”) to LACERS may be lower than this year’s payment.  

But a more realistic analysis reveals that the City is “cooking the books,” relying on a set of false assumptions and policies that cover up the severity of the pension crisis.  

In the real world, the return on investment was breakeven, the unfunded pension liability increased to almost $9 billion, the funded ratio decreased to a unhealthy 61%, and the ARC is understated by at least $300 million. 

There are two policies adopted by the City that allows it to pull the wool over our eyes: “smoothing” where gains and losses compared to the targeted rate of return of 7.5% are amortized over a seven year period and two, the reliance on an overly optimistic investment rate assumption of 7.5%. 

Smoothing was designed to even out the City’s pension contributions so they would not bounce around in an unpredictable manner based on the ups and downs of the stock market.  But this has resulted in an understatement of the unfunded pension liability of $750 million as the cooked up actuarial value of its assets exceeds their market value by the same $750 million. 

Smoothing also resulted in LACERS showing a 7% return on its investments.  But in the real world, the ROI was breakeven (+0.05%) for the year, which, when compared to the targeted rate of return of 7.5%, resulted in an increase in the unfunded liability of almost $800 million, not a $200 million decrease as advertised by the actuaries. 

The major culprit is the reliance on an overly optimistic investment rate assumption of 7.5%.  Professional investors such as Warren Buffett of Berkshire Hathaway state that 6.5% is a more realistic rate of return, and even that rate may be optimistic. 

If the investment rate assumption of 6.5% is used, LACERS’ unfunded liability based on market values will soar to almost $9 billion and the funding ratio will plummet to 61%.  This is a far cry from the advertised $5.5 billion shortfall and a funded ratio of 72.6%. 

The use of the more realistic investment rate assumption of 6.5% will also cause the Annual Required Contribution to increase by over $300 million, putting an even bigger dent in the City’s budget. 

And this does not include the higher Annual Required Contribution for the Los Angeles Fire and Police Pension Plans that cover 26,000 active and retired firefighters and cops. 

Together, the combined unfunded pension liability will soar to over $15 billion.   

Despite this looming crisis, Mayor Eric Garcetti is unwilling to address real pension reform for fear of antagonizing the campaign financing leadership of the City’s public unions.  Rather, he continues to support this shell game, this Ponzi scheme, burying his head in the sand, pretending there is no crisis, hoping beyond hope that the stock market will bail the City out, even though it will dump tens of billions of unfunded pension liabilities on the next two generations of Angelenos.  

Rather than continuing down this path that will result in massive increases in our taxes, Mayor Garcetti needs to stop “waffling.”  He should implement the recommendations of the LA 2020 Commission and the Neighborhood Council Budget Advocates to establish a “Commission for Retirement Security” to review the City's retirement obligations in order to promote an accurate understanding of the facts (transparency) and to develop concrete recommendations on how to achieve an equilibrium by 2020. 

Without real pension reform, the next two generations of Angelenos will be short changed as escalating pension contributions will crowd out basic services while, at the same time, they will be paying more taxes to fund the past financial follies of the overly ambitious Eric Garcetti. 

(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 WATCHDOG--Pay-to-play is alive and well in Los Angeles as our Elected Elite continue to sell us out for cash campaign contributions, the ultimate aphrodisiac for Mayor Eric Garcetti and the members of the City Council. 

In an excellent piece of investigative reporting, David Zahniser and Emily Alpert Reyes detailed how a sleazy real estate speculator / developer illegally funneled more than $600,000 through a network of questionable donors to selected members of the City Council and Mayor Garcetti.  These contributions were part of a full court press to override the findings and recommendations of the City Planning Department and the City Planning Commission in the spring of 2014 that denied zoning changes and variances for Sea Breeze, a $72 million development of a 352 unit apartment building on land intended for industrial use in the Harbor Gateway area of the City. 

[See A $72-million apartment project. Top politicians. Unlikely donors.  Who wrote the checks to elected officials weighing approval? ] 

But the $600,000 in campaign contributions was an excellent investment as the Planning and Land Use Management Committee of the City Council (“PLUM”), the City Council, and Mayor Garcetti approved the controversial zoning changes in early 2015, resulting in an estimated windfall profit well in excess of $10 million for the ethically challenged speculator. 

Assisting with these zoning changes and variances benefited former Council Member Janice Hahn to the tune of $203,500 in campaign contributions.  After she departed for Congress in late 2011, Joe Buscaino, the new Council Member for Harbor Gateway, “earned” $94,700 by ushering the developer’s appeal through the Planning and Land Use Management Committee.  And as we all know, professional courtesy dictates that the local Council Member rules supreme in his district, no matter how bad the rotten Harbor fish stink. 

The developer was not taking any chances as he also greased the palms of Jose Huizar, the Chair of PLUM, and the two other committee members, Mitch Englander and Gil Cedillo, with over $100,000 in contributions from a number of suspicious donors. 

And that was topped off by multiple contributions totaling $60,000 to an independent campaign committee that supported Garcetti. 

But this is well documented deal is not an isolated event as the pay-to-play game is taking place all over the City.  

There is the NoHo West development in North Hollywood; the development  the Martin Cadillac site on the congested Westside; the 27 story residential skyscraper in low rise Koreatown; the Cumulus monstrosity at the F rated intersection at La Cienega and Jefferson in South LA, the 1.6 million square foot Reef development in South Central, just south of DTLA; the Rocketdyne development in Warner Center section of Woodland Hills; and the Caruso luxury high rise apartment building near the already clogged intersections surrounding the Beverly Center. 

And no doubt, other congestion causing monstrosities will be sprouting up all around town, especially in those parts of our City that are undergoing rapid gentrification like Boyle Heights, Echo Park, and Highland Park.  

The corruption associated with the Sea Breeze development must be investigated by the City’s deliberately underfunded Ethics Department and Jackie Lacey, the County’s District Attorney, focusing not only on the sleazy developer and his partners in crime, but on all the beneficiaries of these illegal contributions. 

At the same time, the City Council needs to adopt a rule that requires the real time disclosure of all campaign contributions (and behests) by any party affiliated with a council related action, including lobbyists and lawyers.  This policy would also require our elected officials to sign off on these disclosures, with the requirement that they “know” their donors.  This new rule has been labeled the “Political Donation Impact Review” by a neighbor to a mega-project that will cause ungodly amounts of congestion on surface streets and the adjoining freeway.  

We also have the Neighborhood Integrity Initiative that has qualified for the March ballot.  This reform measure calls for the City to plan for the City’s future, a task that has been neglected because it interferes with the fund raising activities of the City Council.  The Initiative will require the City to update its General Plan and its 37 Community Plans.  It will eliminate “spot zoning” where the City Council, under the leadership of the local Councilmember, will be able to create massive value for the developer by “up zoning” a specific property.  It will also require the City to control the Environmental Impact Reviews, taking that responsibility away from the self-serving developers.  

As an enforcement mechanism, the Initiative places a 24 month moratorium on “up zoned” projects.  But contrary to the propaganda put out by its developer funded opponents, the Initiative does not place any restrictions on projects that are consistent with existing zoning regulations. 

Reform of the City’s planning process has been made more complicated by the approval by the voters of JJJ, the Affordable Housing and Labor Standards Act, that requires inclusionary zoning and the equivalent of a project labor agreement on residential projects seeking zoning changes for projects of more than 10 units.  However, with all the financial constraints imposed by JJJ and its numerous loopholes, the new law will lead to even greater corruption as it gives the City Council more power over residential developments. 

In the next four months prior to the March election, we will have a raucous debate involving  City Planning, the General Plan, the Community Plans, congestion, increased density, the allocation of the necessary resources to the Planning Department, and the absolute requirement for greater transparency into the impact of development on our local communities.  

This process will also provide us with insight to the rigged system where real estate developers and the City Council are in cahoots with each other in ways that work against our best interests and those of our residential communities. 

Sea Breeze is not an isolated deal.  It is just the tip of the iceberg. 

(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 WATCHDOG--We have 24 ballot measures to contend with on Tuesday, four of which involve the City; one each for Metro, the County, and the Los Angeles Community College District; and 17 for the State of California. 

When deciding how to vote on the following seven local ballot measures and six state measures that involve our wallets, we need to consider whether we trust our politicians with our hard earned money and whether our Elected Elite are working in our best interests or those of their campaign funding cronies, real estate developers, and union leaders.   

The City of Los Angeles is corrupt enterprise where pay-to-play is standard operating procedure.  On Sunday, the Los Angeles Times ran a front page expose detailing how $600,000 in illegal campaign contributions paved the way for the City Council and Mayor Garcetti to approve the $72 million Sea Breeze development in Harbor City despite being rejected by the City Planning Commission and the local Neighborhood Council. 

The City is fiscally irresponsible.  Over the last four years, revenues have increased by $1 billion and yet the City is projecting a budget deficit next year of $100 million.     

Despite rivers of red ink and $15 billion of unfunded pension liabilities, Garcetti and the Herb Wesson led City Council have refused to consider the excellent budget recommendations of the LA 2020 Commission. 

The City continues to use our Department of Water and Power as an ATM.  In October, the politically appointed Board of Commissioners (with one dissenting vote) approved an incestuous $41 million, 10 year lease for 4 floors of Figueroa Plaza, a poorly maintained, out of the way complex owned by the City.  Ratepayers are being taken for over $20 million.  

Taxpayers are under attack.  If all the State and local ballot measures are approved, Angelenos proportionate share is $1.6 billion.  This equates to $400 a person or $1,600 for a family of four.  $1.6 billion will increase our sales tax to 11.7% or require a 32% bump in our property taxes.  There is another $2 billion in the pipeline.  And this does not include funding for the hundreds of billions of unfunded pension liabilities.     

Ask yourself, do you trust Mayor Garcetti, the Herb Wesson led City Council, or the reconstituted Board of Supervisors to act in the best interests of its hard working residents?   

City Ballot Measures 

Measure HHH – NO - $1.2 Billion Homeless Bond 

This is a reward for bad behavior.  Mayor Garcetti and the City Council tell us that homelessness is a priority, but it is not a budget priority despite a $1 billion increase in General Fund revenues over the last four years.  Revenues are projected to increase another $600 million over the next four years.  The alternative to this measure is a general obligation bond paid for by the General Fund, not through an increase in our property taxes.     

Measure JJJ – HELL NO / Affordable Housing and Labor Standards 

This ballot measure was cooked up by the County Federation of Labor.  It calls for inclusionary housing, prevailing wages (a 100% premium to market wages), and the equivalent of a project labor agreement.  But the numbers do not work.  Affordable housing becomes more unaffordable as money is diverted to well-paid construction workers and their unions. 

RRR – YES – DWP Reform 

This is a step in the right direction.  Additional ordinances will be needed for DWP to establish its own Human Resources Department, free from the City’s Personnel Department and its overly restrictive work rules.  Management and the Board will have more flexibility provided they abide by the newly mandated strategic plan.  The only power grab is by the City’s civilian unions.   

SSS – NO – Airport Police Eligible for Fire and Police Pension Plans 

We need to have increased transparency and pension reform before there are any changes to the existing pension plans. This proposal is more expensive than the existing arrangement with LACERS (Los Angeles City Employees Retirement System).   

Metropolitan Transportation Authority 

Measure M – NO - Metro / Los Angeles County Traffic Improvement Plan 

A 9½% sales tax is regressive.  It is one of the highest rates in the country. The Metropolitan Transportation Authority has a record of cost overruns (billions) and multiyear delays. The inefficient MTA is unable to manage its current infusion of $2.6 billion in taxpayer money.  It does not deserve a 33% raise to $3.4 billion or another $75 billion over the next 40 years.  It is a “forever” tax with no independent oversight.  A $10 million campaign war chest supporting this new tax is being funded by crony capitalists looking to feast on our tax dollars.  Do you trust the 13 politicians on the MTA Board?  

County of Los Angeles 

Measure A – NO – Parks Parcel Tax 

This is another “forever” tax where the money is directed to pet projects.  There is no plan to address deferred maintenance of $21 billion.  Oversight by political appointees is inadequate: reactive as opposed to proactive. Come back with a 25 year, well thought out plan that includes deferred maintenance and real independent oversight.   

Los Angeles Community College District 

Measure CC – NO - $3.3 Billion Facilities Bond 

CC was placed on the ballot without limited community input.  This poorly run district is overreaching.  $3.3 billion is too damn much for this enterprise with a record of squandering billions from previous bonds.  Cut the amount in half, develop controls to manage the District, create an independent oversight body with real power, conduct community outreach, and then place a measure on the ballot.  

State of California 

Proposition 51 – NO - $9 Billion School Facilities Bond 

An initiative cooked up by home builders, construction companies, realtors, unions, and their cronies.  Keep Sacramento out of the local school systems.  Governor Jerry Brown opposes Prop 51.  

Proposition 53 – YES – No Blank Checks 

No Blank Checks requires voter approval of State revenue bonds of more than $2 billion. It increases transparency and accountability. It may impact Jerry Brown’s two pet projects, the not so High Speed Railroad ($68 billion) and the controversial Twin Tunnels ($15 billion).  A no brainer.  

Proposition 54 – YES – Voters First, Not Special Interests 

The State Legislature cannot pass any bill unless it has been in print and published on the internet for at least 72 hours before the vote.  Prop 54 is a no brainer unless you are a backroom politician.  

Proposition 55 – NO – Soak the Rich Income Tax Surcharge 

Prop 55 extends the temporary income tax surcharge on higher incomes for another 12 years.  Yet State revenues are up $50 billion (over 40%) since the surcharge was approved by the voters in 2012.  The surcharge increases the reliance on the volatile stock market and the income tax, increasing the prospect of huge budget deficits when the market tanks.  This is compounded by Sacramento’s spending spree.  There are unintended consequences of having the highest income tax rate in the country.  The unions and other special interests funding this initiative to the tune of $57 million have produced many misleading, scare tactic ads.   

Proposition 56 – YES - Cigarette Tax 

An additional $2 a pack tax will deter smoking, save lives, and lower healthcare costs. The tobacco industry has spent over $70 million opposing this proposition.   

Proposition 61 – YES – Prescription Drug Pricing 

This proposition is the result of the Legislature’s failure to address the escalating cost of prescription drugs.  Big Pharma is spending over $100 million to defeat this measure. 

Conclusion 

Ballot measures HHH (the $1.2 billion homeless bond), Measure M (the Metropolitan Transportation Authority’s “forever” permanent half cent increase in our already regressive sales tax), and Measure A (the County’s “forever” parcel tax for parks) were placed on the ballot by our elected politicians.  

By voting NO on these three measures, we can send a message to Mayor Garcetti, the Herb Wesson-led City Council, and the reconstituted County Board of Supervisors that we demand increased transparency and accountability, long range planning and multiyear budgeting, pension transparency and reform, and that the City, as well as the County, “Live Within Its Means.”  

And most importantly, they need to understand that we are not their ATM.

(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 WATCHDOG--Crony capitalism and pay to play are alive and well in Los Angeles.   

In a well-researched front page story, Los Angeles Times reporters David Zahniser and Emily Alpert Reyes detailed how a sleazy real estate developer illegally funneled more than $600,000 to City politicians. As a result of this play to pay scheme, Mayor Eric Garcetti and the City Council “up zoned” Sea Breeze, his $72 million residential apartment building on industrially zoned land in the Harbor Gateway neighborhood that had been turned down by the Garcetti appointed City Planning Commission and the local neighborhood council. 

Of course, the offending politicians (including Janice Hahn, a candidate for County Supervisor, who received over $200,000) are quick to deny that their favorable vote was influenced by campaign contributions. But we all know that our smooth talking Elected Elite never met a campaign contribution they did not like, the same as it is with tax increases, DWP rate hikes, and budget busting labor contracts. 

But this is chump change compared to the $10 million campaign led by Mayor Garcetti to brow beat us into approving Measure M, a permanent half cent increase in our sales tax to a staggering 9½%, one of the highest rates in the country.  This tax is designed to raise an additional $850 million a year for the Metropolitan Transportation Authority, increasing its annual haul from the County’s taxpayers by 33% to an astronomical $3.4 billion. 

But who is financing this $10 million campaign that is equivalent on a per capita basis to the tobacco industry’s efforts to defeat Proposition 56, the state ballot measure to increase the tax on cigarettes by $2.00 a pack.  And more importantly, what do they want in return? 

The underwriters of Yes on Measure M Committee (a Coalition of Mayor Eric Garcetti, concerned citizens, labor organizations, businesses, and non-profits) include a large cast of cronies who want to feast at our expense on MTA contracts. 

These vampires include unions (the Operating Engineers, the ILWU, IBEW Local 11, and the Carpenters & Joiners) who want high wages and numerous jobs; construction and engineering firms (Skanska, AECOM, and Parsons) who want big fat contracts; real estate developers (Westfield) and corporations (Fox, Disney, and NBCUniversal) who want special treatment from Garcetti, the City Council, and the County Board of Supervisors; and concerned citizens (Eli Broad, Jerry Perenchio, and Haim Saban) who have their own special agendas.  

We are going to be pounded with slick ads promoting Measure M, the Los Angeles County Traffic Improvement Plan, promising improved mobility, less time in traffic, great middle class jobs, and the repair of our local streets.  But outlandish campaign promises are a dime a dozen, especially when it comes to politicians eyeing our hard earned cash. 

The MTA does not deserve a 33% increase in funding from the taxpayers.  It is an inefficient organization whose projects are billions over budget and years behind schedule.  Its operations are experiencing lower ridership.  And it does not have the management, the engineering staff, the project managers, or the systems to be able handle its existing funding ($2.6 billion) and projects, to say nothing of the pipedreams envisioned by Mayor Garcetti.    

The MTA is also a rogue organization that lacks adequate oversight as it Board of Directors consists of 13 politicians, including nine from the City and County, who have no clue how to manage or oversee a sprawling enterprise with 9,000 employees and an operating loss of $1 billion a year.  

The City also does not deserve an increase in Local Return funds that would accompany this new tax.  It already receives $200 million a year in Local Return funds from the three previously approved sales tax levies, but has failed to develop a plan to repair our streets, some of the worst in the nation.  Which leads to the question: where the hell has all this Local Return money gone?   

Our City has also failed to reform its finances, refusing to even consider the excellent budget recommendations of the LA 2020 Commission.  As a result, the fiscally irresponsible Garcetti now faces a $100 million deficit next year despite an increase in revenues of $1 billion over the last four years.   

Finally, if all of the tax increases on the November ballot were approved by the voters, Angelenos proportionate share will be $1.6 billion, or $400 for every resident.  Lumped together into a single tax, this increase will increase our sales tax to 11.7% or require a 30% bump in our property taxes.  

We cannot afford an increase in our sales tax to a breathtaking 9½% to say nothing about the other ballot measures for the City, County, Community College, and State.   

Measure M is just another example of Crony Capitalism, but this time on steroids as we are being asked to approve a forever tax that will raise $75 billion over the next 40 years.  It is time to tell Eric Garcetti and his cronies that we are not their ATM. 

Vote NO on Measure M. After all, it is your money. 

(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 WATCHDOG--The Dodgers had a very good year, especially when you consider that they set a record for placing players on the disabled list, including a number of highly paid starting pitchers.  The Bums won the National League West with 91 wins, eliminated the Washington Nationals in a nail biting five game series, and gave the Cubs a run for their money in the National League playoff.  

And once again, we led Major League Baseball in attendance.  

Now that the official season is over, the hard work begins on constructing next year’s roster so that the Dodgers have a shot of winning the World Series.  At the same time, the team needs to guard its future by protecting promising prospects and by not entering into unsustainable long term contracts.  

The first order of business is to sign Justin Turner, 31, and Hanley Jansen, 29, to reasonable contracts.  This will involve handsome raises over their existing salaries of $2.5 million and $7.4 million, respectively. 

The Dodgers will also have to trade for or enter into the free agent market to find two healthy starting pitchers and to add more punch to its lineup.  This will require the Dodgers, who already have the largest payroll in baseball, to once again open up the check book. 

The Dodgers are an attractive destination for a free agent: a winning team with a shot at a World Series ring, the second largest media market in the country, the glamor and hype of Hollywood, fantastic weather, and enthusiastic fans looking for a repeat of 1988. 

But the Dodgers are starting out with two strikes because California has the highest marginal income tax rate in the country, topping out at 13.3% for all income north of $1,000,000.  But a million bucks, while a lot of money to the ordinary fan, does not get us a starting player. 

Rather, a quality starting pitcher or a productive hitter will command a multiyear contract with an annual salary at least $20 million.  At that level, the tax bill from the State of California will be $2.6 million (12.6%), not exactly chump change. 

If the Dodgers were to make the player whole for the extra tax, it would cost the Dodgers an extra $4 million when MLB’s luxury tax is taken into consideration.

On the other hand, if Proposition 55, the union sponsored ballot measure that extends the “temporary” Soak the Rich income tax for an additional 12 years, is rejected by the voters, the player will only have to pay 9.8% of his income, or about $2 million. But this is still a hefty amount when compared to other states (Texas, Florida, and Washington) that have no income tax.

But this incremental savings may make a difference to a player or players who may have the potential to help us win a World Series and end our 28 year drought.  

While the self-serving proponents tell us that there are no adverse consequences if we stick it to the State’s highest earners, we all know that there is no such thing as a free lunch.

One very real consequence of our hostile tax environment is that many prosperous businesses and their high paying jobs will depart for locations with a more favorable tax and regulatory environment.  Or how many large multinational companies will move large manufacturing operations out of Southern California to a more business friendly climate.  Or how many people and companies will decide to pass on investing in California, especially since the State is sending the signal that it cannot be trusted when it comes to “temporary” taxes and that tax increases are a way of life. 

Prop 55 will also increase our dependence on the income tax which, when the economy and stock market tanks, will result in massive deficits, especially since Sacramento is embarking on a spending spree given the economy’s recovery.  

The Los Angeles Times, a supporter of Proposition 30 in 2012 that authorized the “temporary” income tax increase, is urging us to vote NO on Prop 55 because the Legislature has refused to reform our State’s tax structure that is “fiscally, politically, and socially unsound.”

While Prop 55 may not cost us the World Series, it is an example of the unintended consequences of this self-serving ballot measure cooked up by our public sector unions. 

Vote NO on Proposition 55.

(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 WATCHDOG--Last week, the Times Editorial Board rightfully criticized Mayor Eric Garcetti for not taking a position on Build Better LA (Measure JJJ, the Affordable Housing and Labor Standards Relating to City Planning), saying we “need straight talk from [our] City leaders” and “now’s the time for them to come out of hiding on Measure JJJ.” 

The measure’s sponsor and major proponent, the politically powerful Los Angeles County Federation of Labor, claims that Build Better LA will create more affordable housing and more well-paying construction jobs.  

The truth is that if JJJ is approved by the voters, it will stymie the development of multifamily residential housing, create fewer jobs, make affordable and market rate housing more expensive, and deprive the City of much needed revenues. 

And given the loopholes in Build Better LA that allow the City Council to amend this initiative and the massive amounts of cash involved, there is the potential for mischief and corruption. 

If passed, developers who want a zoning, height, or density change will be required to have up to 25% of the project’s units be affordable for low and moderate income tenants.  But inclusionary housing, especially at the levels dictated by JJJ, is not a free lunch because it will have a significant downward impact on rents and the developer’s return on investment. 

Developers will also have to meet stringent hiring requirements.  These will require that construction workers be paid the “prevailing wage,” a rate that is significantly higher than market wages.  Developers would also have to meet local hiring requirements and comply with onerous reporting requirements.  Overall, these “project labor agreement” mandates will increase costs by more than 40% according LA based Beacon Economics, a well-regarded research and consulting firm that has been retained by the City on numerous occasions.  

Between the lower per square foot rents resulting from the addition of affordable apartments and the significantly higher costs per unit caused by the prevailing wage and other hiring and union mandates, the developers’ return on investment tanks, the risks increase, the banks refuse to make construction loans, investors bail, and developers abandon projects that would have been viable if not for JJJ, Build BAD LA. 

As a result, fewer apartments will be built, there will be fewer construction jobs, and rents will increase because of the scarcity factor.  The City’s revenues will also be impacted by fewer construction and development related fees that are required from real estate developers. 

And the City’s economy will be adversely impacted by the downturn in construction.  

JJJ allows the City Council to adjust the affordable housing percentages if the developer is able to show that such adjustments are necessary to ensure the developer a “reasonable return on investment.”  Of course, given the amount of money involved, a few targeted campaign contributions will help ensure that the affordable set-asides guidelines are relaxed.  

The developers may also pay an “in-lieu fee” into the City’s Affordable Housing Trust Fund if they do not want to include affordable units in a project.  This will allow the developers to maintain luxury buildings where the high end tenants do not have to mix with the hoi polloi.  

But once this cash is in the Affordable Housing Trust Fund, the Mayor and creative geniuses on the City Council will no doubt figure out a way to direct these funds to their pet projects without these deals seeing the light of day. 

We are being sold a bill of goods by the Los Angeles County Federation of Labor, which, along with IBEW Local 11, have invested over $1 million in this ballot initiative.  

But where is Mayor Eric Garcetti?  Why isn’t he shedding light on this scam that is being perpetuated by the same wise guys that tried (but failed) to pull a fast one by exempting companies whose workers were represented by unions from the recently enacted minimum wage requirements?  

Or is our upwardly mobile Mayor, the wannabe Governor, Senator, or Cabinet Secretary, willing to sell us out for fear of alienating the campaign funding unions that are feasting at our expense?  

The Los Angeles Times urges a NO vote as JJJ because it will make LA’s housing crisis even worse by making affordable housing more unaffordable.  

Vote NO on JJJ.  It is BAD for LA. 

(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 WATCHDOG--Since California is not a battleground state, we have been spared from many of the inane ads for Hillary and The Donald.  But that is not to say we are off the hook as an estimated $400 to $500 million will be spent on the State’s 17 ballot measures by powerful special interests trying to convince us to reject or approve selected ballot measures. 

Of the 17 November ballot measures, three ballot measures are attracting a substantial portion of cash: Proposition 56 (Cigarette Tax), Proposition 61 (Prescription Drug Pricing), and Proposition 55 (the extension of the “temporary” Soak the Rich Income Tax Surcharge). 

Rather than succumb to barrage of ads, we should tell the big money special interests to take a hike, to buzz off, sending a loud and clear message that we are not for sale to the highest bidder, especially when they bombard us with many misleading advertisements. 

As such, both Proposition 56 (Cigarette Tax) and Proposition 61 (Prescription Dug Pricing) deserve a YES vote as Big Tobacco and Big Pharma have spent over $150 million into ads opposing these two ballot measures.  

On the other hand, Proposition 55 (Soak the Rich Income Tax Surcharge) deserves a NO vote as the California Teachers Association and the California Association of Hospitals have sunk over $55 million into this ballot measure that is betrayal of our trust and not in the best interest of the State and its economy. 

YES on 56, the Cigarette Tax 

If voters approve this initiative sponsored by the American Cancer Society, taxes on cigarettes will increase by $2.00 a pack.  This economic signal to the market will discourage people from either continuing or taking up this nasty habit that costs us billions in healthcare costs. 

The expected haul of $1.4 billion in the first year (which will decline over time as fewer butts are consumed) from this new tax will be allocated primarily to funding health care for low-income Californians. 

But Big Tobacco (primarily Philip Morris and RJ Reynolds) has “invested” over $66 million to defeat this measure, making numerous misleading claims that this tax will benefit special interests (the medical industry) and deprive schools of much needed money.  But these claims have been debunked by numerous credible sources, including our Los Angeles Times which endorses this proposition.

While many people oppose ballot box legislation, this initiative was the result of the failure of the Legislature to pass tax increases because our elected officials were bought off by generous campaign contributions (or threats) from the tobacco industry and their lobbyists.  

YES on Proposition 61, Prescription Drug Pricing 

Once again, our cowardly legislators have failed to represent their constituents as they have placed the profits of the pharmaceutical industry and their political careers and campaign war chests above our best interests.  

In this case, the Legislature’s failure to pass laws that would increase transparency into the rapidly increasing prices of prescription drugs has prompted an initiative led by the Aids Healthcare Foundation (“AHF”) that will prohibit the State of California from buying any prescription drug at a price greater than the lowest price paid by the Department of Veteran Affairs. 

While AHF has spent about $15 million placing this initiative on the ballot and purchasing airtime, this amount is dwarfed by the $87 million spent to date by pharmaceutical companies.  And the industry is expected to dump considerably more cash into its efforts to defeat this measure, with some expecting expenditures of at least $100 million. The Los Angeles Times, which opposes this measure, raised a number of valid points as to why we should vote NO.  But its solution to “fast rising drug prices” is a comprehensive, national solution that addresses competition, the speedy approval of new drugs, the role of federally funded research, and the development of new insurance models is not going to happen without prodding from the likes of AHF and the voters. 

By voting YES on 61, we will send a message to Sacramento and the international drug companies that they need to get their asses in gear and develop a comprehensive policy that is acceptable to the voters of California. Otherwise, nothing will change and we (and our wallets) will continue to be sitting ducks for Big Pharma.  

NO on Proposition 55, the Soak the Rich Income Tax Surcharge 

In 2012, 55% of California’s voters approved Proposition 30.  This measure authorized a “temporary” surcharge on higher income Californians to help plug the State’s budget deficit.  And now that the State’s revenues have increased by almost $50 billion to almost $170 billion, there is no need to extend the Soak the Rich Income Tax Surcharge beyond its 2018 expiration date.  

However, the California Teachers Association and the California Association of Hospitals and Health Systems are leading a $56 million campaign to extend this surcharge for another 12 years. They are also supported by a slew of elected officials, organizations that rely on the State’s cash, and public sector unions that are addicted to our cash and who have no problem betraying the promises that were made in 2012. 

While this surcharge will produce an estimated $7 billion a year, it also increases the State’s dependence on the income tax derived from wealthy Californians.  But this places the State’s finances in a very precarious position, especially when the stock market tanks, capital gains disappear, and incomes shrivel, resulting in significantly lower tax revenues and massive budget deficits like the State experienced during the Great Recession. 

This is why the Los Angeles Times opposes Proposition 55, calling for the Legislature to produce a more comprehensive overhaul of the State’s budget process. 

Conclusion

Rather than being bamboozled by Big Tobacco, Big Pharma, and the State’s public unions, we have the opportunity to see through their misleading ads and vote for what is in our best interests and not follow the lead of our Elected Elite who have their own personal agendas. 

Vote YES on 56, Vote YES on 61, and Vote Hell NO on 55. 

(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 WATCHDOG--Of the 24 ballot measures on the November ballot, only four are specific to the City of Los Angeles. And of these four, only one deserves a YES vote (RRR - DWP Reform), two deserve a NO vote (HHH - the $1.2 billion homeless bond and SSS – Fire and Police Pension Plans), and one deserves a HELL NO vote (JJJ - Build Better LA). (See Ballot Summaries below.) 

When determining how to vote, the first and most important question is whether you trust the proponents of the ballot measure.  And in the case of the City of Los Angeles, Mayor Eric Garcetti and the City Council have not earned our trust and confidence as they have not embraced the reform of our City’s finances.  They have ignored the excellent budget recommendations of the LA 2020 Commission, have refused to address the Structural Deficit where the increase in personnel expenditures (salaries, pensions, and medical benefits) exceed the growth in tax revenues, have passed on reforming the City’s two pension plans which are $15 billion in the hole, have failed to develop a plan to repair our streets and the rest of our failing infrastructure, and continue to bow to the wishes of real estate developers and billboard operators. 

NO on Proposition HHH, the $1.2 Billion Homeless Bond 

While our Enlightened Elite who occupy City Hall have told us that addressing homelessness is a priority, they have failed to make the average payment of $65 million a year a budget priority despite a $1 billion increase in City revenues over the last four years and another $600 million over the next four years.  Rather than continue with this $2 billion revenue grab over the next 30 years (including interest payments) through an increase in our property taxes, the City has the capacity to pay for the homeless bonds by eliminating their discretionary slush funds, reduce their bloated staffs, and discontinue the hundreds of millions in “giveaways” to international hotel operators and mall operators such as Westfield.  

The City has not developed a credible financial plan to fund the $2.8 billion gap between the $4 billion cost of 10,000 units of permanent supportive housing and the $1.2 billion in bond proceeds.  Nor has it addressed the over the top cost of $400,000 a unit.  Nor has it entered into a definitive agreement with the County which is considering a quarter cent increase in our sales tax ($350 million) to fund its service to the homeless. 

The concept of throwing cash at the homeless problem without a financial and operational plan does not pass muster, especially given the lack of meaningful oversight.  

For more information, see the CityWatch article, Los Angeles Must Resolve Its Homeless Crisis … This $1.2 Billion Taxpayer Ripoff is Not the Way to Do It.  

NO on Charter Amendment SSS, the Los Angeles Fire and Police Pension Plans 

If approved by a majority of the voters, Airport Police officers will be eligible to participate in the Los Angeles Fire and Police Pension Plans (“LAFPP”) instead of the less generous Los Angeles City Employees Retirement System (“LACERS”) plan.  But without real pension reform that addresses the billions of unfunded liabilities of both LACERS and LAFPP, this ballot measure does not deserve our support.   This scheme will also result in significantly higher pension contributions by the Airport and eventually its airline tenants.  

The Los Angeles Times urges a NO vote. Police Pension Measure SSS Raises Too Much Doubt to Support. 

HELL NO on Initiative Ordinance JJJ / Build Better LA Initiative 

The Build Better LA Initiative is a crude attempt by the Los Angeles County Federation of Labor to take advantage of the affordable housing shortage in the City of Los Angeles.  It would require real estate developers who request a zoning change or variance to include units of affordable housing in the development and to agree to the equivalent of a Project Labor Agreement.  While there has not been any detailed analysis of the financial impact of this measure on housing costs, preliminary estimates indicate that it would drive up costs by 30% to 40%.  This added expense will result in a transfer of money intended for affordable housing into the pockets of construction workers and their unions. 

This misleading, self-serving ballot measure will make affordable housing more unaffordable.  

The Los Angeles Times urges a NO vote.  Measure JJJ Could Make LA’s Housing Crisis Even Worse.   

For additional information, see the CityWatch article, Build Better LA Initiative: Affordable Housing Made More Unaffordable  

YES on Charter Amendment RRR, DWP Reform 

The major problem with our Department of Water and Power is City Hall.  Unfortunately, this charter amendment does not address the issue of Ratepayers being used as an ATM by Mayor Garcetti and the City Council.  Nor are there any major changes in the governance of the Department.  But it does allow for more efficient procurement and contracting, increased oversight by the Ratepayers Advocate and a newly created Water & Power Analyst that reports directly to the Board of Commissioner, and a more transparent process of appointing a new General Manager. It also requires the Department and the Board of Commissioners to prepare a Four Year Strategic Plan beginning in 2020 for consideration by the City Council and the Mayor. 

The major source of controversy is that this charter amendment begins the process that may lead to the Department establishing its own Human Resources Department for its 9,000 employees that is separate and distinct from the City’s Personnel Department and remove the Department from the City’s cumbersome civil service rules and regulations.  The City’s civilian unions are labeling this as a “power grab” because it would lessen their influence over the affairs of the Department and limit the transfer of City employees to better paying jobs at DWP.  But any major changes would require Council approval which would “undoubtedly prompt an epic political battle.” 

While this ballot measure is not the answer to our prayers, it is a step in the right direction. 

As a side note, City Council President deserves a pat on the back for ushering this ballot measure through the City Council.  And with his leadership, hopefully other meaningful changes will be implemented by the City Council. 

The Los Angeles Times in a very good editorial urges a YES vote.  

++++++++++++ 

Ballot Summary / Question 

HHH - HOMELESSNESS REDUCTION AND PREVENTION, HOUSING, AND FACILITIES BOND. PROPOSITION HHH. 

To provide safe, clean affordable housing for the homeless and for those in danger of becoming homeless, such as battered women and their children, veterans, seniors, foster youth, and the disabled; and provide facilities to increase access to mental health care, drug and alcohol treatment, and other services; shall the City of Los Angeles issue $1,200,000,000 in general obligation bonds, with citizen oversight and annual financial audits? 

SSS – CITY OF LOS ANGELES FIRE AND POLICE PENSIONS; AIRPORT PEACE OFFICERS. CHARTER AMENDMENT SSS. 

Shall the Charter be amended to: (1) enroll new Airport peace officers into Tier 6 of the Fire and Police Pensions System; (2) allow current Airport peace officers to transfer into Tier 6 from the City Employees’ Retirement System (LACERS) at their own expense; and (3) permit new Airport Police Chiefs to enroll in LACERS? 

JJJ – AFFORDABLE HOUSING AND LABOR STANDARDS RELATED TO CITY PLANNING. INITIATIVE ORDINANCE JJJ. 

Shall an ordinance: 1) requiring that certain residential development projects provide for affordable housing and comply with prevailing wage, local hiring and other labor standards; 2) requiring the City to assess the impacts of community plan changes on affordable housing and local jobs; 3) creating an affordable housing incentive program for developments near major transit stops; and 4) making other changes; be adopted? 

RRR – CITY OF LOS ANGELES DEPARTMENT OF WATER AND POWER (DWP). CHARTER AMENDMENT RRR. 

Shall the Charter be amended to: (1) add qualification requirements, stipends and removal protections for DWP Board; (2) expand Board to seven members; (3) require DWP prepare four-year Strategic Plans for Council and Mayoral approval; (4) modify DWP’s contracting, rate-setting and other authority; (5) permit future alternatives to existing civil service standards for DWP employees through collective bargaining; and (6) require monthly billing?

+++++++++++++++++

(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 WATCHDOG--On Tuesday, the Board of Water and Power Commissioners voted 4 to 1 to approve an above market, 10 year, $41 million lease of four vacant floors of subpar office space at Figueroa Plaza, a 615,000 square foot, City owned office complex located north of the downtown Central Business District.  

LA WATCHDOG--On September 28, Mayor Eric Garcetti issued his Fiscal Year 2017-18 Budget Policy and Goals to all of the General Managers of All City Departments. The goals include closing a projected $85 million deficit for the fiscal year beginning July 1, 2017, identifying over $40 million in new general funds to maintain the City’s current commitment to the homeless, and hiring 5,000 new employees by June 30, 2018 to restore services and replace retiring workers.   

This missive is focused on next year’s budget and does not address the long term reforms that are desperately needed to tackle the City’s Structural Deficit (where the growth in personnel costs exceeds the increase in revenues), the massive unfunded liabilities of its two unsustainable pension plans (estimated to be in the range of $15 billion based on a more realistic investment rate assumption), and the deferred maintenance on its infrastructure (estimated to be north of $10 billion). 

On October 4, the Neighborhood Council Budget Advocates (“NCBAs”)* delivered the following recommendation to Mayor Garcetti and the City Council.

+++

Early White Paper Recommendation

The Neighborhood Council Budget Advocates (the “NCBAs”) urge the City Council and Mayor Eric Garcetti to implement the following recommendations of the LA 2020 Commission as part of its budget for the 2017-18 fiscal year: 

• 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 to understand the longer-term consequences of its policies and legislation. (Council File 14-1184-S2)  

• Be honest about the cost of future promises by adopting a discount rate and pension earnings assumptions similar to those used by Warren Buffett.   

• Establish a “Commission for Retirement Security” to review the City's retirement obligations in order to promote an accurate understanding of the facts. 

We request that the Budget and Finance Committee assign a Council File for each of the recommendations and agendize each of these items for its next meeting on October 17, 2016.  

The implementation of these recommendations will be the first step in addressing the City’s Structural Deficit, the massive unfunded liabilities of its two unsustainable pension plans, and the deferred maintenance on its infrastructure.  

The adoption of the recommendations of the LA 2020 Commission will result in increased transparency into the City’s complex operations and finances and begin the process of restoring Angelenos’ trust and confidence in City Hall and its elected officials.  

The NCBAs are making these recommendations prior to the 2017 Neighborhood Council Budget Advocates White Paper so that they will be an integral part of the upcoming fiscal year’s budget process.  

The NCBAs look forward to a timely response.

+++

Stay tuned to see if Mayor Garcetti and the City Council are willing to implement meaningful reform or will it be business as usual, kicking the can down the road and dumping tens of billions in unfunded obligations on the next generation of Angelenos. 

+++

NEED TO KNOW 

*The Neighborhood Council Budget Advocates are the elected to represent the charter authorized Neighborhood Councils.  Their role is to explore, research, study, seek input, prepare and present the concerns and interests of the communities of the City of Los Angeles ("City") about the use of City funds, City revenue collection, City budget and budget allocations, efficiency of City government, City finances, City financial obligations and other such concerns and related to financial matters of the City to the Mayor and City Council.  

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(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 WATCHDOG--Mayor Eric Garcetti and his budget team are putting a full court press on the Board of Water and Power Commissioners to approve an above market, 10 year, $41 million lease for four vacant floors of office space at Figueroa Plaza, a two tower, 615,000 square foot City owned complex located north of the Central Business District in DTLA.  (Photo above: Sculpture by Terry Allen. The bronze statue is located in Downtown L.A. at 7+FIG Plaza, on the corner of 7th and Figueroa Street, outside the corporate offices of Ernst Young) 

But this deal, like the previous 10 year, $63 million lease for six vacant floors that was proposed in June, does not pass the smell test because this above market lease is not in the best interests of the Department of Water and Power or its Ratepayers. 

Which leads us to the question of whether the five Commissioners, led by President Mel Levine and Vice President Bill Funderburk, will stand up for the interests of the Department and the Ratepayers or will they bow to the pressure from Mayor Garcetti and his budget team who are looking to balance the City’s budget on the backs of the Ratepayers? 

Figueroa Plaza is not considered a desirable location for law firms, investment banks, commercial banks, consulting firms, or other professional organizations that occupy Class A space because of its poor location north of the Central Business District.  In addition to being out of the way, this older building has a poor reputation for maintenance, services, and amenities.  This is not helped by rent roll dominated by government employees.  

Yet the City wants our Department of Water and Power to pay Central Business District Class A rents for this subprime space.  At the same time, the City wants DWP to pony up $9 million for tenant improvements, an expense that is usually born by the landlord, in this case, the City of Los Angeles.  

From the Mayor’s perspective, in the first year of the lease, the City will receive $3 million in rent and “save” $9 million in tenant improvements.  This $12 million swing will help the City close its projected $85 million budget deficit for the upcoming fiscal year.  

The Department maintains that it needs this additional space to accommodate 700 new employees.  But without a well thought out Space Utilization Plan for its 9,576 employees, an 8 to 10 year lease is inappropriate, especially given its above market cost.  

Any space plan would need to address the updating of DWP’s 50 year old historic headquarters building located across from the Music Center in downtown Los Angeles.  But this is problematic as IBEW Local 18, DWP’s domineering union, will assert jurisdiction over all the work at overtime rates, doubling the cost and the time to completion.  This will cost Ratepayers an additional $150 to $200 million.  

The question has also been raised whether the IBEW and Union Bo$$ d’Arcy would claim jurisdiction over the work at Figueroa Plaza.  

At its meeting on September 20, the Board of Commissioners discussed the proposed $41 million lease in closed session.  When the $63 million lease was on the agenda in June, the Board deferred the matter until a later time.  As a result, there has not been a public discussion or any outreach involving this controversial lease whose main beneficiary appears to be the City, not DWP or the Ratepayers. 

The Department has prepared a 229 page memo outlining this transaction. This includes a 161 page report that justifies the lease. But several experts, including potential tenants and their representatives, have discounted this report stating it was “made as indicated” and does not reflect the real rental market. 

Will the Commissioners conduct an open hearing on this above market lease?  Will the Commissioners demand that DWP prepare a Space Utilization Plan before entering into this above market lease?  Will this study include many different alternatives, including selling the DWP headquarters and moving to an area that would benefit from the economic development?  Will the Commissioners demand that the Department update its Personnel Plan to reflect the addition of 700 new employees?  

In other words, will the Commissioners act in the best interests of the Department and the Ratepayers and tell the Mayor and his budget team to buzz off?

(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:  [email protected].)-cw

• See also:

DWP Deserves ‘Free’ Rent at Fig Plaza

The Fig Plaza Stick Up: Ripping Off DWP Ratepayers for $40 Million

--Exposed! City Overcharging DWP Millions on Downtown Fig Plaza Rent

LA WATCHDOG--Mayor Eric Garcetti and the Herb Wesson led City Council are using the homeless issue to pick our pockets for almost $2 billion over the next 30 years in an effort to cover up their abject failure to make this unfortunate situation a priority in the City’s budget over the last four years. 

If Proposition HHH (Homeless Reduction and Prevention, Housing, and Facilities Bond) is approved by two-thirds of the voters, the City will issue $1.2 billion of bonds over the next ten years.  These funds, along with billions from politically wired real estate developers and other governmental entities, will finance the construction of 10,000 units of permanent supportive housing for LA’s homeless population at a cost as high as $4 billion.  

LA WATCHDOG--Many believe that California would be better off if we sent Attorney General Kamala Harris to Washington to succeed Barbara Boxer, the 75 year old “junior” senator from California.  But then again, is it fair to the rest of the country to stick the nation with the highly partisan Kamala Harris when Loretta Sanchez is the more qualified candidate? 

Kamala Harris’ fatal flaw is that she is a staunch opponent of pension reform.  

During the last two years, she has authored unfavorable and biased summaries for two bipartisan ballot measures that would have reformed California’s unsustainable pension plans.  Pension reform is the most important financial issue facing all levels of government as ever increasing pension contributions are required to cover the estimated unfunded liability of up to $500 billion. But these growing contributions are crowding out basic services such as public safety and the repair of our infrastructure as well as progressive initiatives involving education, affordable housing, and services to the homeless. 

This has resulted in numerous ballot measures for new taxes which, despite their stated use, are really going to fund the upside down pension plans.  

But rather than endorsing pension reform, Harris sold out to the campaign funding leadership of the public unions who are vehemently opposed to any reform of the very generous pension plans.  As a result, Harris has benefitted from significant cash contributions to her campaign war chest.   

Obviously, Harris did not get the memo from Rhode Island Governor Gina Raimondo that “you can’t be a progressive and be opposed to pension reform.” 

Ever since Harris was elected Attorney General in 2010, she has used her office as a stepping stone for higher office.  Over the years, she has been gallivanting around the country, spending hundreds of thousands of dollars on first class travel, five star hotels, and limousines and hitting up the usual out of state suspects for campaign donations. 

She has also used her office to reward her campaign contributors.   In 2015, Harris placed so many conditions on Prime Healthcare’s acquisition of the money losing hospitals owned by the Daughters of Charity that the buyer walked away from the transaction.  According to subsequent litigation, it was alleged that Harris was doing the bidding of the SEIU which was in a labor dispute with Prime Healthcare.  

No wonder the SEIU has been so generous to Harris’ campaign war chest.  

Harris has been so busy running around the country raising money and planning her next campaign that her office has suffered from the lack of organization and leadership and high turnover.  Her office has failed to implement or follow through on numerous initiatives such as gun control and criminal justice. But that has not stopped her from claiming credit for the work of others as was the case with the national mortgage settlement that was spearheaded by the Attorney Generals in New York and Delaware.  

Sanchez, on the other hand, has developed a reputation over her twenty years in House of Representatives as a legislator who can work in a bipartisan manner, much like Senator Diane Feinstein who has been an effective proponent for California. She has the endorsement of 17 of the State’s Democratic Congressional representatives, almost double the number that are supporting Harris.  

Sanchez also has a strong working knowledge of immigration, a very important issue to Californians, as she is the co-chair of the Immigration Task Force, a member of the Hispanic Caucus, and the daughter of hard working immigrants who achieved the American Dream. 

She has an excellent understanding of the water issues facing the State, having worked on matters involving conservation, groundwater, the Salton Sea, and other complex problems facing Orange County and Southern California. 

She is a ranking member of the House Armed Services Committee, but voted against the Iraq War, and the House Homeland Security Committee.  

Without doubt, Sanchez, an MBA and a financial analyst in the private sector before she upset B1 Bob Dornan in the 1996 election, is familiar with the federal budget, a complex issue that impacts all Californians. 

While Sanchez and Harris are both Democrats, we have the choice between Harris, a San Francisco ideologue who has derailed pension reform in return for union campaign cash, or Sanchez, a Southern Californian and a seasoned legislator with private sector experience who has demonstrated that she can work in a bipartisan manner to get things done. 

While Harris is leading in the polls, Sanchez has the unique opportunity to upset Harris by putting together a coalition of Hispanics, moderate Democrats, independents, and Republicans. 

Viva Sanchez.  

(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:  [email protected].)

-cw

LA WATCHDOG--In June, the Board of Commissioners of our Department of Water and Power postponed its consideration of a 10 year, $63 million lease of six floors of office space at Figueroa Plaza, a City owned office complex, because it did not pass the smell test.* 

Now, the Department is considering another ten year lease, but only for four floors at a cost of $41 million.  But once again, this deal is not ready for prime time as it is not in the best interests of the Department and the Ratepayers. 

The Department’s management makes the valid argument that its needs this additional space to house 700 employees who are needed to oversee the repair and maintenance of its water and power infrastructure, to modernize its IT and financial management systems, and to facilitate succession planning and the transfer of institutional knowledge as a third of its work force is eligible to retire over the next five years. 

But a ten year, $41 million lease is out of the question since DWP has not developed a long term plan to determine its real estate needs.  This space plan would include the reconfiguration of the John Ferraro Building, DWP’s 50 year old, 1.6 million square foot headquarters that is located across from the Music Center in DTLA. Interestingly, this idea was nixed during the City’s budget crisis by Mayor Villaraigosa and the Eric Garcetti led City Council.  

The “restacking” of JFB is estimated to be an expensive two or three year project if it were properly planned and managed by an experienced, independent contractor who would develop a floor by floor plan that would limit the disruption to the Department’s operations.  

There is also the concept of locating some of the Department’s noncore functions in less expensive real estate in parts of our City that would benefit from economic development. 

A well thought out and properly executed space plan would indicate that the Figueroa Plaza lease not exceed four or five years and that Department would need only three floors of “creative” office space.  This would imply that a five year lease (including parking) would be in the range of $12 million, not including tenant improvements of around $9 million that the City wants DWP to pay.  The total lease would be approximately $21 million, a significant discount to the new $41 million proposal. 

However, the City should consider cutting DWP and its Ratepayers a break given that we are forking over $291 million to fund the illegal 8% Transfer Tax on Power System revenues.  We are also being slammed with a five year $1 billion rate increase.  As such, the City should consider waiving the annual rent of about $2 million a year, leaving DWP to pay for the tenant improvements and parking.  DWP would be responsible for the $9 million tenant improvements that would stay with the building after the lease is over.  

The City will argue that it cannot afford the loss of revenue.  But given the vacancy factor of this out of the way location, its lack of amenities, its government dominated rent roll, the lack of interest by private sector renters, and the complex’s deferred maintenance, the likelihood of attracting tenants for these three floors is questionable. 

And maybe it is time for the City to give a little something back to the Ratepayers. 

●●

• Previous CityWatch articles on the DWP lease of Figueroa Plaza 

--The Fig Plaza Stick Up: Ripping Off DWP Ratepayers for $40 Million

June 27, 2016 

--Exposed! City Overcharging DWP Millions on Downtown Fig Plaza Rent

June 20, 2016

(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:  [email protected].)

-cw

LA WATCHDOG--We need to send a loud and clear message to Mayor Eric Garcetti, the Herb Wesson led City Council, the County Board of Supervisors, the Los Angeles Community College District, the Los Angeles Unified School District, Governor Jerry Brown, and our representatives in Sacramento that we are not their ATM. 

LA WATCHDOG--In the 2013 Mayoral race, Candidate Eric Garcetti opposed Proposition A, the permanent half cent increase in our sales tax that would have raised our already regressive sales tax to a staggering 9½%, one of the highest rates in the country. 

LA WATCHDOG--In her ten years on the Los Angeles City Council (2001-2011), Janice Hahn never met a wage increase, rate increase, or tax increase she did not like.  She was also opposed to increased transparency into the operations, finances, and management of the Los Angeles Department of Water and Power. 

In 2007, Hahn was a major supporter of the 5 year, 25% wage increase for the City’s civilian workers.  While the economics of this deal were questionable even under favorable economic conditions, it turned out to be a disaster when the economy tanked and the City’s finances were turned upside down.  

Even with this river of red ink, Hahn was unwilling to support the hard decisions to balance the budget because she did not want to antagonize the leaders of the City’s unions who had snookered Mayor Antonio Villaraigosa and Council President Eric Garcetti with promises to bargain in good faith if the City’s financial condition changed.  

The City eventually balanced the budget, but only after it dumped 1,600 employees onto the DWP payroll (along with $175 million in unfunded pension liabilities) and enticed 2,400 senior employees to retire through the Early Retirement Incentive Program that stuck the City’s underfunded civilian employee pension plan with an additional $600 million liability. 

In 2008, Hahn was a sponsor of the Proposition A (the City of Los Angeles Special Gang and Youth Violence Prevention, After-School and Job Training Programs Tax), a $36 parcel tax designed to raise about $30 million a year.  But this ballot measure failed to receive the necessary two thirds vote, in large part because the ballot measure did not win the endorsement of the Los Angeles Times.  

In 2008 and 2010, Hahn supported two hefty rate increases in our water and power rates while, at the same time, putting on a show where she pretended to sympathize with the downtrodden Ratepayers.  After all, she wanted the continued support of DWP’s domineering union, IBEW Local 18, and Union Bo$$ d’Arcy, its politically powerful business manager.  

In 2010, she and her partner in crime Richard Alarcon sided with Mayor Villaraigosa in his scheme to have DWP withhold $73.5 million from the City’s General Fund unless the City Council agreed to an even higher rate increase. But this effort failed when the 13 other members of the City Council refused to go along with hare brained stunt that was not in the best interests of the City and the DWP Ratepayers.  

In late 2010, Hahn was also one of the opponents of the placing on the ballot the charter amendment to create the Ratepayers Advocate to oversee the operations, finances, and management of the Department.  And even after 78% of the voters approved this ballot measure in March of 2011, Hahn continued her efforts to water down the powers of the Ratepayers Advocate because Union Bo$$ d’Arcy’s concern about increased transparency and accountability into the operations and finances of our Department of Water and Power. 

While Hahn was on the City Council, Hahn gave lip service to pension reform.  But when push came to shove, Hahn was MIA because once again she was unwilling to alienate the leaders of the City’s civilian unions who refused to negotiate in good faith to reform our seriously underfunded pension plans.  

The County Board of Supervisors has undergone a significant change as the fiscally responsible Zev Yaroslavsky and Gloria Molina have been replaced by Sheila Kuehl and Hilda Solis, both of whom are not known for their budget balancing prowess.  Adding the fiscally irresponsible and inexperienced Janice Hahn to the Board of Supervisors that has a budget of $28 billion and pension liabilities exceeding $50 billion is only asking for trouble, especially if the economy experiences a downturn. 

A vote for Janice Hahn will be a vote for budget shenanigans, a vote against pension reform, a vote against transparency, a vote for the self-serving leaders of the County’s public unions, and a vote for increased taxes on the hard working citizens of Los Angeles County. 

(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:  [email protected].)

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LA WATCHDOG--The Build Better LA Initiative is the Los Angeles County Federation of Labor’s attempt to increase affordable housing in the City of Los Angeles by requiring real estate developers who want a zoning change or General Plan amendment to include low income housing in their developments.  It also provides for increased density in Transit Oriented Communities in return for affordable units. 

But this November ballot initiative (officially the Affordable Housing and Labor Standards Related to City Planning Initiative Ordinance JJJ) is over 10,000 words and very difficult for planning gurus to understand to say nothing of us mere mortals.  But maybe this obfuscation is part of County Fed’s strategy.  

The proponents of the initiative are playing up the lack of affordable housing in the City.  But County Fed’s underlying goal is to establish the equivalent of “project labor agreements” on all developments of ten or more units that are granted General Plan amendments that allow for increased residential space, density, or height.  

Notably lacking is any discussion about the economics associated with this ballot measure.  But according to several sources, this initiative will increase construction costs by about 30% to 40%, in large part because of the onerous hiring requirements (see below) contained in the initiative. 

There has not been any discussion or analysis of the impact this initiative would have on our streets, especially in areas such as Hollywood and DTLA where congestion is already a major league problem. More than likely, these supersized skyscrapers will require many more luxury apartments to pay for the affordable units, resulting in massive increases in traffic as the upper income tenants will not rely on the bus or subway, but will tool to work in their gas guzzling BMWs. 

There are also no specific provisions that require the City to update its General Plan or its 37 Community Plans.  Rather, it appears that “up zoning” and “spot zoning” will continue to be business as usual, only this time on steroids, all to the detriment of our family oriented neighborhoods and streets.  

This initiative also gives extraordinary power to the City Council as it will have the ability to adjust the affordable housing requirements of a particular project “upon a showing of substantial evidence that such adjustments are necessary to maximize affordable housing while ensuring a reasonable return on investment for Developers.” 

Talk about an invitation for corruption! 

Union sponsored Initiative JJJ is not ready for prime time.  It adds significantly to the cost of construction.  There is no planning.  It is overdevelopment of steroids.  It does not respect our neighborhoods.  It grants the City Council too much power.  And it is an invitation for corruption. 

Vote NO on JJJ.  There are better ways to build LA.

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Ballot Language 

AFFORDABLE HOUSING AND LABOR STANDARDS RELATED TO CITY PLANNING. INITIATIVE ORDINANCE RRR 

Shall an ordinance: 1) requiring that certain residential development projects provide for affordable housing and comply with prevailing wage, local hiring and other labor standards; 2) requiring the City to assess the impacts of community plan changes on affordable housing and local jobs; 3) creating an affordable housing incentive program for developments near major transit stops; and 4) making other changes; be adopted? 

Hiring Requirements 

All building and construction work on the project will be performed at all tiers by contractors which

(a) are licensed by the State of California and the City of Los Angeles;

(b) shall make a good-faith effort to ensure that at least 30% of all their respective workforces’ construction workers’ hours of Project Work shall be performed by permanent residents of the City of Los Angeles of which at least 10% of all their respective workforces’ construction workers’ hours of Project Work shall be performed by Transitional Workers whose primary place of residence is within a 5-mile radius of the covered project;

(c) employ only construction workers which possess all licenses and certifications required by the State of California and the City of Los Angeles;

(d) pay their construction workers performing project work the wages prevailing in the project area determined pursuant to California Labor Code § 1770; and

(e) have at least 60% of their respective construction workforces on the project from: (1) workers who have graduated from a Joint Labor Management apprenticeship training program approved by the State of California, or have at least as many hours of on-the-job experience in the applicable craft which would be required to graduate from such a state-approved apprenticeship training program, and (2) registered apprentices in an apprenticeship training program approved by the State of California or an out-of-state, federally-approved apprenticeship program.

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(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:  [email protected].)

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LA WATCHDOG--In November, we will be asked to reject or approve “The California Children’s Education and Health Care Protection Act of 2016.” If approved by a majority of the voters, this ballot measure, Proposition 55, will extend to December 31, 2030 the “temporary” income tax surcharges on upper income Californians that were authorized in November of 2012 when 55% of the voters approved Proposition 30. 

Prop 30 was designed to prevent “devastating” cuts to the State’s educational budget by establishing a seven year “soak the rich” income tax surcharge (2012 to 2018) and a four year quarter of a cent increase in our sales tax (2013 to 2016).  

According to Legislative Analyst, this 12 year extension of the ‘temporary” income surcharges will increase state revenues by $4 billion to $9 billion a year from 2019 through 2030, depending on the economy and, importantly, the stock market.  This year’s budget assumed $7 billion from these income tax surcharges. 

But this is not the only “revenue enhancement” scheme that is being cooked up by our friends in Sacramento and the campaign funding leadership of the public sector unions. 

State Senator Bob Hertzberg (D-Van Nuys) is pushing to extend the sales tax to include services.  This so called “reform” would generate “roughly $10 billion in its first year and increasing amounts thereafter.”  According to a chart prepared by the California Board of Equalization, the State has identified 15 industries and 487,000 firms that have the potential to generate $111 billion in sales tax revenue.  This includes lawyers, accountants, and other value added service providers. 

According to a report by State Controller Betty Yee and her Council of Economic Advisors on Tax Reform, another revenue enhancement is the “split roll” where commercial and industrial properties would be assessed at their fair market value.  At a 1% property tax rate, annual “revenue gains would likely surpass $5 billion and may add up to more than $10.2 billion.”  However, the split roll will require the approval of the voters since it involves amending Proposition 13, the third rail of California politics. 

The folks in Sacramento and their cronies in the transportation lobby are also beating the drums for an increase our gas tax, already the highest in the nation when you factor in the impact of the “cap & trade” fees.  This proposed increase is estimated to be in the range of $2 billion to $4 billion a year.  This money would help fund efforts of the California Department of Transportation to repair the State’s highways, roads, bridges, and other related infrastructure.  

At the same time, the State is swiping $1 billion a year from CalTrans, a bloated agency where 3,500 surplus employees are costing the State, its taxpayers, and our roads over $500 million a year. 

Our good friend Hertzberg is also pushing a bill (SB 1298) that would allow stormwater / urban runoff to be considered as wastewater, thereby allowing the County of Los Angeles to levy $20 billion in fees without the approval of the voters.  This would result in an increase in our real estate taxes of 8%.  

Proposition 30 has done an admirable job of making up revenue shortfall over the last five years.  Since 2012, the State’s General Fund revenues have increased by almost $34 billion (39%) while overall revenues, including special funds, has increased to almost $171 billion, a bump of more than 40%. 

Now that income and sales tax revenues have rebounded to record levels, Proposition 55 and the 12 year extension of the “temporary” income tax surcharges represents just another revenue grab by the State, the California Teachers Association, the hospital lobby, and the SEIU (Service International Employees Union) that deserves to be rejected by the voters in November. 

And while a “soak the rich” tax has a certain appeal, we need to be careful not to kill the golden goose.  If only a small percentage of the upper income taxpayers and their profitable corporations and the small businesses they control decide to relocate or not invest in our economy, many of our fellow citizens will be without good manufacturing or value added service oriented jobs.  

We need to send a message to the fiscally irresponsible scoundrels in Sacramento, their cronies, and the campaign funding leaders of the public sector unions that we are not their ATM.  After all, we are doing more than our fair share as we have the highest income tax rate, the highest sales tax, and the highest gas prices in the country.  

Vote NO on Proposition 55.

(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:  [email protected].)

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LA WATCHDOG--David Wright (photo above on left front with Mayor Garcetti) is an excellent choice to be the permanent General Manager of our Department of Water and Power. But you have to wonder why we would endorse Wright as he has to have a screw or two loose if he is willing to take a position that is the toughest job in the City.  

He will be caught in a crossfire between skeptical Ratepayers who are concerned about ever increasing rates, the environmental lobby where money is no object, a domineering union and its rich contract and overly restrictive work rules, the media who loves to put DWP on the front page, the public’s demand for increased transparency, the Mayor and the City Council who view the Department as an ATM, and the credit rating agencies.  

At the same time, he and his management team are responsible for leading a complex enterprise with 9,000 employees, $5 billion in annual revenues, and a five year capital budget of over $13 billion that is designed to finance numerous unfunded mandates and regulations and update the Department’s water and power infrastructure. 

He has to be crazy. 

Nevertheless, Tony Wilkinson (Chair of the Neighborhood Council DWP Memorandum of Understanding Oversight Committee and an active participant in developing the November ballot measure to reform certain aspects of Department) and I sent the following letter to City Council President Herb Wesson endorsing Wright as our next General Manager.  

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City Council President Herb Wesson

Los Angeles City Hall 

Appointment of David Wright as LADWP General Manager  

Dear Herb, 

This is a critical time for the Department of Water and Power which is why we support naming David Wright as its permanent General Manager.  

The City has placed on the November ballot a measure to reform the Department of Water and Power.  This reform will also require additional legislation by the City Council.  However, it appears that the City’s unions and other organizations are preparing to oppose this reform as they are putting their own interests ahead of those of the Ratepayers and the City.  

The Department is also in the midst of a major capital expenditure program to update its infrastructure, to repower its generating capacity so that 33% of our energy will be from renewable resources by 2020, and to meet numerous clean water requirements. 

The Department is also engaged in many internal reforms, including the establishment of the Administrative System Services unit to replace the “Joint Services” operation.  This new division will focus on improving customer service and the billing systems, establishing a more efficient personnel department, modernizing information technology and computer systems, enhancing physical and cyber security, and creating a more efficient procurement and contracting operation. 

Over the last five years, under the management of knowledgeable industry executives, the Department has made considerable progress in meeting its goals.  As such, it makes sense to continue with our existing management team and avoid the risk of bringing in an outside General Manager who does not have a working knowledge of the Department, its people, its goals, its Ratepayers, the City Council, and the Mayor.  

We are fortunate to have David Wright, the Interim General Manager who has been the Department’s Chief Operating Officer for the past year. He has a strong industry background and is knowledgeable about the Department and its operations.  He also has had considerable experience with other organizations, which will allow him to introduce new ideas to the Department. 

Importantly, Marcie Edwards has endorsed David, in large part because of the excellent job he has done in addressing the billing fiasco caused by a flawed Customer Information System.  He has made considerable progress in reorganizing and rationalizing Joint Services, a thankless but important job that nobody was willing or able to tackle.  

As Ratepayers, we were impressed with Wright’s August 6 presentation to the Neighborhood Council DWP MOU Oversight Committee where he emphasized the need for excellent customer service which in turn will improve the Department’s reputation.     

We strongly believe that selection of a new General Manager cannot wait until a year from now, when an entirely new and lengthy selection process may be in place. DWP needs a firm hand today. It needs a General Manager who is not handicapped by the term Interim in his title. 

We urge you to make this process easy, put this task behind you, and name David Wright as the permanent General Manager of the Department of Water and Power.  

Tony Wilkinson

NC DWP MOU Oversight Committee 

Jack Humphreville

DWP (Advocacy) Committee 

PS: We also recommend that the Department, the Board of Commissioners, the City Council, and the Mayor retain the services of Marcie Edwards for the next six months to facilitate an orderly transition, to assist the Department in analyzing pending legislation and regulations, and to protect DWP’s assets from regionalization. 

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(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:  [email protected].)

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LA WATCHDOG--The Wall Street Journal is reporting that Gannett, the nation’s largest publisher of newspapers, has sweetened its offer to purchase Tribune Publishing* (“Tribune” or the “Company”), the owner of the Los Angeles Times, The San Diego Union-Tribune, the Chicago Tribune, and six other daily newspapers around the country. (Note: Tribune Publishing changed its name to “tronc,” which was derived from TRibune ONline Content.) 

While the terms of this overture were not disclosed, it is most likely north of the all cash $15 a share offer that was rejected out of hand by Tribune’s Board of Directors in late May.  But this unilateral action of the Board was not appreciated by many of the other shareholders who believed that this offer, double the price of the stock when Gannett made it first offer in April, represented an excellent price for Tribune. 

The back story of this rejection of Gannett’s very generous offer started in February with the private sale of 15% of Tribune’s stock at a below market price to Michael Ferro, a Chicago based internet entrepreneur, in a back room deal most likely orchestrated by Eddy Hartenstein, the then Chairman of the Board and the former publisher of the Los Angeles Times.  Hartenstein, not to his credit, was an associate of Sam Zell, the controversial Chicago based financial wizard who was responsible for the 2008 bankruptcy of the Tribune Company, the former parent of the Company, that was saddled with $13 billion of leveraged buyout debt. 

Within two months, Ferro had fired the Chief Executive Officer, replaced him with one of his long time henchman, and reconstituted the Board of Directors, leaving him with absolute control of Tribune. Today, Hartenstein is one of the two remaining directors. 

In May, subsequent to Gannett’s offer of $15 a share, Ferro engineered the private sale of 5 million shares at $15 a share (a total of $75 million) to Patrick Soon-Shiong, a Westside medical entrepreneur who is reputedly the wealthiest person in Los Angeles.  (He also owns a minority interest in the Los Angeles Lakers which he purchased from Magic Johnson.) Combined, Ferro and Soon-Shiong, now the Vice Chairman of Tribune, own 28% of the stock and control the Board of Directors.   

But the other 72% of the shareholders, many of which are sophisticated institutional investors and hedge funds, will not be happy campers if Tribune rejects another very generous offer from Gannett.  And this time, it will result in litigation. 

On June 13, Oaktree Capital Management, a well-respected Los Angeles based investment firm and the owner of 13% of Tribune stock (18% prior to the diluting sales to Ferro and Song-Shiong), sent a five page letter to Tribune asserting its right under Delaware Law to inspect the books and records of the Company.  Of particular interest are the shenanigans associated with the February below market sale of over 5 million shares to Ferro and the subsequent actions that allowed Ferro to seize control of the Company without paying a premium price.    

Other institutional investors have also indicated their displeasure at the cavalier rejection of Gannett’s offer, calling for the Board to retain an independent financial advisor to determine the fairness of the Gannett offer and to enter into negotiations with Gannett.  

According to The Wall Street Journal, Tribune is expected to respond to the new offer by the end of the week.  At that time, we will know if the Company has entered into a $1 billion deal with Gannett (this includes almost $400 million in debt).  Tribune’s Board may also decide to enter into negotiations with Gannett with the desire to increase the offer or to entertain offers from other potential purchasers, including News Corporation, a company controlled by Rupert Murdoch. 

If the Board of Directors rejects Gannett’s generous offer, the outside shareholders will no doubt haul the Company and its directors into court in an attempt to force the Tribune to sell the Company.   

Alternatively, Gannett may bide its time and launch, with the support of the outside investors, a proxy contest to oust the current directors at next year’s annual meeting.   

In any case, stay tuned. 

(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:  [email protected].)

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