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Kudos to the mayor for a slick presentation, but that’s as far as it goes. Form wins over substance – yet again.

With labor negotiations underway, I would not be so quick to use $47.9 million of the city’s reserve fund to plug the $242 million budget deficit, but that is exactly what Eric Garcetti did. How sure can he be that no raises will be offered in the upcoming fiscal year? I hope he is right, but budgets should not be based on hope. If that assumption does not pan out, then tap the reserve fund, but not before.

Equally shaky is the assumption that investment earnings on the pension portfolios will be higher than anticipated.

Really?

Unless the lion’s share of the investments are in relatively short-term, fixed rate bonds, predicting returns requires a crystal ball. So far this year, markets have been very turbulent and the world economy could be in for rough sledding due to the crisis in Ukraine. Russia’s economy is deeply integrated with the rest of the world’s. Sanctions against Putin’s reincarnation of the former Soviet Union will have ripple effects, unlike the ones that have been squeezing Iran.

One-time revenue of $52.6 million does nothing to fix the structural deficit. Nothing more needs to be said on that point.

The biggest mystery is what constitutes the basis for the $64.8 million from efficiencies and reductions. We already know that some of it represents the elimination of vacant positions. Those are not really cuts. We would be better served if the mayor also presented a comparison of the proposed budget against an estimate of this year’s actual results. Garcetti, as all the mayors before him, is playing a game. It is easy to sandbag vacancies and use them in the next budget process to give a false impression of progress on the cost reduction front.

Are the other reductions programmatic or a series of one-off, what-if guesses? Do tell, mayor.

I can accept the revenue growth estimate as reasonable, especially with respect to property taxes.

I realize politicians will blow smoke to cover up deficiencies, but shouldn’t they at least use e-cigarettes? They are less hazardous.

I forgot. The City Council banned them.

Jill Banks Barad is the Energizer Bunny of the NC system.

Few can bring together 200 NC board members, stakeholders and some of the highest profile politicians for an evening of food, socializing and debate as she can.

This being the Valley Alliance, most of the guest pols were running for seats with a footprint in the Valley. The candidates for Zev Yaroslavsky’s seat in the Third District – Bobby Shriver, Sheila Kuehl, Pamela Conley Ulich and John Duran – were the headliners for the evening.

Using a forum Q&A format, the candidates had a chance to express their stands on issues ranging from homelessness to county services.

They kept things civil. There were a few friendly jabs, but nothing as intense as what transpired in the mayoral campaign. It was, after all, primarily an evening devoted to mingling and giving the crowd a chance to get to know the candidates at a personal level. I have nothing but praise for how they conducted themselves – and everyone knows how critical I can be, so that is saying something. I will try to interview as many of them as possible in the weeks to come.

I had a chance to sit with a former preteen idol of mine, Sheila Kuehl of Dobie Gillis fame. The show was cutting-edge comedy for its day and would hold up well by contemporary standards, a credit to the writers, producers and the cast.

Candidates for Zev's seat square off at VANC's 11th anniversary event.

Candidates for Zev’s seat square off at VANC’s 11th anniversary event.

The highlight of the evening was honoring City Controller Ron Galperin with VANC’s “Got It” award, in recognition for the unprecedented contributions he has made to transparency with the control panel database and his relentless pursuit of answers in the DWP nonprofit scandal.

A special thanks to all the Neighborhood Councils in the Valley, almost all of them were represented, for contributing time, funds, supplies and, most importantly, camaraderie.

I was not surprised by Councilmember Paul Krekorian’s reaction to the 20-20 Commission’s recommendation to lower the earnings rate assumption for the city’s employee pension programs.

Lowering the outlook from 7.75% to 4%, a rate in line with what Warren Buffet’s Berkshire Hathaway uses to calculate its pension liability, would disclose a far more realistic estimate of what the citizens of our city are on the hook for in the long run. Simply stated, the lower the rate, the more assets you need to cover the guaranteed retirement benefits of city employees.

He called the recommendation “absurd”, according to the Daily News, stating that the returns over 25 years have been much better than that.

Krekorian is not what one would call financially astute. As the Chair of the Budget and Finance Committee, he has labeled the city’s budget as balanced.

That’s right, folks. The budget is so balanced that the city is contemplating a sales tax increase to cover street and sidewalk deferred maintenance (a.k.a. neglect) to the tune of $4.5 billion. The budget also defers the payment of police overtime to future periods. Hundreds of millions of dollars are taken from our DWP ratepayer money to plug the overall budget gap – funds that should be invested in utility improvements.

When you defer current obligations year after year, you are robbing from the future. That’s not balancing the budget.

But what does Krekorian know….or care? It won’t be his problem down the line when he collects his city and state pensions.

Back to the rate of return.

As I wrote back in 2011:

The holy grail of public employee unions in general – not just the city unions – is that past performance is indicative of future returns. That’s just the opposite of the financial advice offered by investment advisers, whether they are employed by large Wall Street firms or independent professionals working from home.

Krekorian chooses to hide in the past.

Markets have become more volatile and will likely stay that way for a long time to come. Political unrest and growing international competition almost guarantee it. High risk demands conservative long-term earnings estimates.

Selecting a rate assumption involves a high degree of subjectivity. I prefer to focus on the relevant range of time.

If you look too short or too far back you risk putting too much weight on current events, such as a bull or bear market, or long-gone structural elements, such as regulatory controls no longer in effect (i.e, Glass-Steagall).

A rolling period covering the 5 to 15 year average return is probably more indicative of reality as it relates to contemporary times. As an example, for LACERS, that would support something closer to a 6.5% return.

The 4% recommendation is perhaps too conservative, but it would be wise to apply it to the assets needed to fund anticipated benefit payouts for the next 2-3 years. For that matter, the unfunded liabilities should be disclosed for several outcomes. Does Krekorian or any of his colleagues understand the meaning of disclosure?

Whether the assumption is 6.5% or 4%, or anything in between, the unfunded liability of the pension plans will soar. But better to face reality than otherwise. How else can you negotiate employee pension contribution requirements without considering a range of possibilities?

Council Members Buscaino and Englander are making the rounds pitching their latest version of Save Our Streets, this one calling for a half-cent bump in the sales tax for the next fifteen years.

The price tag has risen since their failed attempt last year. It has gone from $3 billion to $4.5 billion and includes around $600 million for sidewalk repairs.

A street in Valley Village

A street in Valley Village

It is worth noting that a $1.5 billion street repair tax proposal by Tony Cardenas and Greig Smith in 2006 never made it to the ballot due to a lukewarm reception by residents and competition from other bond measures on that year’s ballot.

Nothing much has changed since then. There are other measures on the horizon including a County half-cent sales tax boost for transportation projects (probably on the 2015 ballot). It will weigh heavily on the minds of the likely voters in 2014, making the required two-thirds share of the votes for approval of the SOS tax a tough sell.

If both SOS and the County increases were approved, our sales tax would jump to 10%. It would be worth buying your big-screen TV and computer system in adjacent Ventura and Orange Counties. If you have access to a van or pickup truck, it might pay to buy home furnishings at stores outside of Los Angeles County, especially if you live fairly close to the county lines.

Also looming in the future is a 15-cent-per-gallon fuel tax being pushed by State Senator Darrell Steinberg. It probably stands a zero chance of being approved in 2014, but do not rule it out in future years.

A few cents here; a few cents there, and before you know it, we will be paying an insidious penalty for making everyday purchases. We already do, but it will get worse.

Proponents of SOS whine that street maintenance has been hampered by a decline in gasoline tax revenue as a result of more fuel-efficient cars on the road. They point out that other sources from the federal government and county bonds will be declining.

I would be more sympathetic to their complaints, but street maintenance funding has been an issue since the 1950s. This 1997 article from the Los Angeles Times is interesting reading. Our streets were already in dire straits back then.

You would think that a group of fifteen adults serving on the City Council would have by now arranged the spending priorities to address core needs instead of giving city employees a free ride on health care.

We are going through a process of what I refer to as virtual bankruptcy: services are cut rather than dealing with the structural deficit fed by overly generous and unsustainable employee compensation. Unless our elected officials are willing to come to grips with this problem, we should be reluctant to open our checkbooks.

Having said that, we must also be realistic.

We are in such a deep hole as far as reducing the street and sidewalk repair backlog, additional funding above and beyond offsets in the general fund will be needed to close the gap.

Whether the funding comes in the form of a bond or tax, we need to ask this very important question: are you willing to trust a government that has failed to manage its obligations for at least half a century with a $4.5 billion commitment over the next fifteen years?

It would be like Clark Griswold giving his ne’re-do-well cousin Eddie a pile of money so he can reinvigorate his worm farm.

$4.5 billion is out of the question. In 15 or 20 years we could be right where we are today…considering yet another increase in sales tax to pay for neglect.

But what if we scale it back with some caveats?

Try this out for size: a bond or tax which would generate $500 million to be used over a three-year period. If the city could show a meaningful reduction in the repair backlog while maintaining the status quo with the rest of the streets, then we could consider an extension of the funding.

This plan would require locking down the condition of the streets at the beginning of the program and a re-evaluation after three years.

The Micro Paver technology used by the city would enable the city to measure the street conditions at roughly two periods in time (obviously, it would not be possible to evaluate all the streets at any one time).

This approach might even dovetail with a performance-based budgeting program under consideration by the city.

It would certainly be easier to sell than the “trust me” proposal by Englander and Buscaino……and their cousin Eddie.

Former Assembly Speaker Bob Hertzberg, and now candidate for State Senate (18th District), has the mindset we need to rescue Sacramento from itself.

Perhaps not a moment too soon, since it appears we are on track to see a quorum in the State Prison system rather than in the Senate chambers at the capitol.

Bob Hertzberg strikes a senatorial pose while addressing NCVV.

Bob Hertzberg strikes a senatorial pose while addressing NCVV.

The Serial Hugger has no competition to speak of, yet he has mounted a campaign. That speaks well of him – it shows he respects his opponents and does not view the race as a coronation, precisely the opposite approach taken by Antonio Villaraigosa when he ran for his second term as mayor. It is worth noting that the former mayor posted a mediocre margin of victory for an incumbent facing a poorly funded field.

Hertzberg has been making the rounds of the neighborhood councils in the 18th. He appeared at Neighborhood Council Valley Village last week. The Green Party candidate appeared the month before; the Republican candidate will probably appear at a later meeting – everyone gets a chance to face the board, make a case for their candidacies and field questions from the board and stakeholders.

After emphasizing his experience as a member of the Assembly, where he developed a reputation as someone capable of promoting bipartisanship, and his involvement in California Forward, a public policy think tank dedicated to “smart government,” the questions commenced.

NCVV does not toss softball questions.

Hertzberg was first quizzed on SB 1818, the law allowing a density bonus to developers. It trumps Valley Village’s Specific Plan.

The law was passed after Hertzberg left the legislature, so he was unfamiliar with the adverse ramifications it had on the availability of affordable housing, parking, traffic congestion, and the scale of development. Still, I sensed there was a little disappointment by members of the board over his lack of knowledge on the subject. To me it was an indication that Hertzberg had not remained involved in local issues since leaving office, preferring to focus on statewide matters instead.

While the SB 1818 feedback he received from the board was intended to educate him, the response he received about the Bullet Train was an outright argument against his position to support the controversial and costly project.

I started the questioning (as a stakeholder – I am no longer on the board).

Did he still support the project in view of costs that had doubled since the High-Speed Rail initiative passed, that the travel time between Los Angeles and San Francisco would take longer than promised*, the lack of reliable financing and the need to fund more important capital needs (i.e., water systems, seismic safety)?

*See this recent article in the Los Angeles Times concerning the speed.

Did it make any difference that Governor Brown was going to rob cap-and-trade revenue to keep the project alive even though the estimated, but questionable, environmental benefits of the train would not accrue until after 2020, the enacting legislation’s deadline for generating carbon reductions?

I also called his attention to a resolution NCVV passed in 2012 calling for a re-examination of the assumptions used to justify continued funding of the Bullet Train and insisting that alternative capital projects need to be considered first.

He admitted the final cost would exceed the $68 billion price tag.

He followed with, “All major projects face opposition at first.”

That was the extent of his justification beyond some anecdotal personal experiences with high-speed rail in other countries.

Do you think that answer would fly in any board room in either the profit or nonprofit sector with billions of dollars on the line?

It did not fly at NCVV.

At least three members challenged his rosy outlook. No one offered him a lifeline.

I heard one stakeholder say to another, “I think Bob just ran into a stone wall.”

It was apparent that Hertzberg was surprised. He could not muster a logical argument; probably because there is none.

As with most of his colleagues, Hertzberg does not seem to understand the process of capital budgeting.

Management of any organization typically consider an array of important capital funding requests. While all may have merits, only the ones that provide the best value for the investment make the cut. Debt service can last a lifetime on big-ticket items. If a major error in judgment is made and a sketchy project is allowed to proceed, monies needed for other vital projects in the future will be limited.

By contrast Assembly Member Adrin Nazarian (46th Assembly District), although a supporter of the high-speed concept, recognizes the need to apply the brakes to the Bullet Train and consider alternatives, including the development of local and intra-regional commuter rail – a subject I addressed in a widely-viewed article back in 2010.

Bob Hertzberg is the best qualified candidate for this office, but he needs more pushback from his constituents before he heads down the wrong track at full throttle.

To his credit, he listens and is capable of making adjustments to his outlook, but it appears he will need some arm-twisting to lay off Jerry Brown’s vision-inducing elixir.

Speaker Bob has the best potential to influence lawmakers in Sacramento.

But does he want to be remembered for engineering a fiscal trainwreck the equivalent of the ill-fated Cannonball Express?

In a decision that supports transparency, Superior Court Judge James Chalfant made it clear that the accounting records of the Joint Institutes of Safety and Training are subject to a full audit by City Controller Ron Galperin.

It will be early May before the ruling truly takes effect, but the clock is now running for IBEW union boss Brian D’Arcy to cough up the records. It will be interesting to see what delaying tactics D’Arcy attempts while he contemplates an appeal.

After all, records might be difficult to recover: paper files may have been damaged when an IBEW-maintained water pipe burst, or a power surge caused by a faulty IBEW-installed circuit breaker may have fried the computer hard drives – talk about water and power! I’m sure Brian and his boys will think of something to impede the audit.

But while we wait for the big guy to play out his cards, there are other angles that need to be investigated.

For one, the DWP managers who served on the nonprofits’ boards, including Ron Nichols.

According to the Los Angeles Times, Judge Chalfant stated that the DWP managers had provided “no supervision” and “little control” over the nonprofits’ spending and therefore share the blame for the controversy.

Exactly what do they know? Did they sleep through the board meetings?

It was reported that Nichols claimed he was threatened with legal action by D’Arcy if he ever spilled the beans. But can that story be substantiated? Is Nichols trying to cover possible gross negligence on his part?

Everyone connected with the nonprofits must be questioned under oath. The sooner, the better. Otherwise key figures may become subject to selective amnesia.

It would be nice to know what the nonprofits’ boards had in store for the $11.8 million stashed in the trusts’ bank accounts – an amount that is almost triple the annual $4 million allocation they receive.

Think of it, their testimony, if received before Galperin starts his field work, could independently corroborate any audit findings pointing to a pattern of abuse. This could facilitate the filing of criminal charges.

And let’s not stop with the board members and others associated with the nonprofits.

The CPA firm who conducted the last audit should have its records and personnel subpoenaed as well. CPA firms do not have the same level of protection as lawyers do when it comes to client confidentiality.

$40 million over ten years may not sound like much to elected officials in our city, but it is indicative of a corrupt culture.

And it is our City Council members, past and present, who are the true enablers.

Empower LA reported a major uptick in Neighborhood Council election turnout for the San Fernando Valley. Total registrations were 8,270 (that’s the actual headcount), up 59% over 2012.

Impressive.

But let’s put it in perspective.

2012 marks the low point in recent years; so to an extent, the 2014 election turnouts were bouncing off the bottom. NC board members may recall that the Los Angeles City Clerk and the City Council pulled the rug out from under the Neighborhood Councils in 2010. The City Clerk failed to deliver the support they promised to the 2010 elections, blaming a budget cut from $4 million to $1.9 million. However, that was no excuse for waiting until the eleventh hour to notify NCs that support would be curtailed. NCs scrambled to assemble an election apparatus at a time when outreach should have been the priority.

Had just half of the City Clerk’s surviving $1.9 million budget been transferred to DONE to support the election, it would have amounted to around $10,000 per NC, a level that would have allowed a robust, self-directed outreach effort. Instead, the budget was consumed by the Clerk’s over-priced and inefficient services.

The effect of the 2010 betrayal of Neighborhood Councils by the Clerk and the City Council flowed into the 2012 elections. The NC system was still in limbo about the City Clerk’s role. Had the NCs been left in uninterrupted control of the elections from the get go (with administrative support from DONE), there would have been a mature, well-honed process in place in 2012.

2012′s turnout dropped by 4.41% from 2010, in part because volunteer NC board members and stakeholders do not have the time and resources to turn on a dime. Turnover in the board ranks complicates matters, too. Therefore, disproportionate time had to be focused on re-learning procedures instead of directed at enhancements.

All that being said, the Neighborhood Councils in the Valley deserve much credit for clawing back lost participation.

Drilling down to the ground level, Valley Village had the second highest turnout in Region 4, but very likely the highest per capita turnout. From my personal observations, signage was more visible and prevalent, flyer saturation improved and there was deeper penetration by e-mail appeals for votes. There was also more candidate and stakeholder involvement. I personally covered 5 miles and the equivalent of 90 flights of stairs passing out flyers. And did I feel it the next day when I was shooting hoops at the gym.

Elections are the single largest budget item for neighborhood councils. Our one and only mailer cost $8,000 to reach all addresses in Valley Village – and we are among the smallest of councils. Adding to that, cooperative media advertising and supplies may bring the final total to around $10,000. As with other councils, we are allocated a total budget of $37,000.

One sure way to propel turnout is to have a hot issue.

That was the case during our mansionization wars in Valley Village. In two successive elections, 900 and 1,000 residents cast ballots.

It might be a good strategy for NCs to elevate issues to a hot status.

How about the DWP increases all of us will face in the years to come? That is a direct hit on almost all residents.

But if we elevate issues, we must also demonstrate to the stakeholders that their votes will have a bearing on the resolutions. That’s the hard part. It will require intense dialog among the NC boards and the elected officials in City Hall. I believe NCs are too accommodating of the electeds at times, or at least when it comes to the important stuff.

Will we be up to it?

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