My interview with KABC

It was a pleasure to talk to KABC’s Doug McIntyre about the scandalous settlement between the city and the union representing DWP workers – IBEW Local 18 – over the City Controller’s right to audit two controversial and secretive trusts controlled by the union and fully funded by the ratepayers.

You may want to read my latest article on the subject.


The settlement will enable us to learn something, but no where near enough about the operations of these trusts.

Here’s the link to the broadcast.

A deal with the devil

The settlement between the City and the IBEW Local 18 regarding the City Controller’s right to audit the controversial nonprofit trusts represents an important step forward – but only a baby step.

Regardless, we owe Controller Ron Galperin our full support as he continues to press for further access to the trusts’ records through the courts. God knows he is not receiving much, if any, backing from the City Council. Mayor Garcetti and City Attorney Feuer appear to be the only public voices standing behind him.

The agreement allows an audit of the records for the last five years. It’s an important start in as much as time is against the City. The longer the process is delayed, the more likely key data and documentation could be misplaced or altered. It might already be too late in some instances.

It would ordinarily be spurious to suspect fraud before conducting an audit, assuming the absence of any red flags. However, the stonewalling by union boss Brian D’Arcy represents a bright crimson banner.

After reading through the agreement, I have the following concerns:

The city’s representatives to the Trust Boards will be limited to the General Manager of the DWP and other managers of the utility appointed at the discretion of the GM (Section II.1).

With all due respect to Marcie Edwards, the current GM, she is in a position where she must deal with D’Arcey on a regular basis. In a sense, both of them are in a symbiotic relationship when it comes to directing the personnel and resources of the giant utility – hardly the degree of independence you would want in a board member. Therefore, it is important that Mayor Garcetti have full discretion to appoint people who can cast a fresh set of eyes on the activities related to the trusts, free of the daily pressure D’Arcy is capable of applying.

After the completion of this audit, the five-year period will be off limits for further testing, especially any substantive audit work (Section II.5.11). The agreement states: “..the Controller agrees that he shall not conduct any further audit of the Trusts solely for the five fiscal years covered by this Agreement and shall not cause to be issued or seek to enforce any subpoenas in support of an audit, or otherwise attempt to gain possession, custody or control of any TRUST Documents, for those fiscal years.”

In other words, Galperin gets one shot at it. So, if the City is eventually allowed to audit other years, and a suspicious transaction is uncovered in the course of that audit reflecting on activity in the closed periods, it will be tough luck for Ron. It would make it difficult to connect the dots for a pattern of abuse spread over a long period.

It is also conceivable that D’Arcy could block the city from using data from a closed period to look backward. For example, a single transaction in a recent year that appeared to be reasonable as a one-off event might take on a new meaning if considered in light of an older one.
Although the agreement uses the term “unfettered access,” nothing is unfettered unless it can be viewed in the full context of events.

Denying the issuance of subpoenas related to the activities of the closed years bestows the same client confidentiality advantages enjoyed by attorneys on the CPAs employed by the trusts. In other words, D’Arcy can claim the equivalent of attorney-client privilege, essentially securing any relevant evidence from the public’s view.

Notwithstanding the above limitations, Ron is capable of making the best from a weak hand. But let’s not put him in a position where he is trying to win at solitaire with only 51 cards.

As I stated earlier, it is important we support him and, equally important we put pressure on our City Council representatives to back Ron publicly – because D’Arcy has proven to be a master at dividing and conquering.

Weather Whines

Let’s put politics aside for the moment.

As we creep closer to the rainy season in Southern California (if there is a rainy season), the local weather reporters break out of their Steve Martin/LA Story mode and put on their best dour expressions, then unleash doom and gloom projections.

Mind you, the doom and gloom are relative.

For example, I listened to KNBC’s Fritz Coleman the other day as he reported on the Polar Vortex’s approach towards the nation’s interior.

Pretty sobering.

After he was through, pausing just a second to take a breath, he put us Angelenos on notice. In the same somber tone he used to describe the frozen plague descending on the East, he warned of the potential for rain later in the week.

The potential, not even a certainty.

It doesn’t take much to send our local weather people into a vortex of fear, as Jimmy Kimmel reminded us last year around this time.

I recall one reporter hushedly utter that there was a “threat of drizzle.”

Perhaps I am being too critical. After all, it may have been Category 3 drizzle. Time to cover the outdoor grill and stock up on your favorite Chardonnay, with some extra Brie, from Trader Joe’s – that is, if the shelves have not already been cleared by your panicked neighbors.

Yes, I know burn areas can be devastated by steady periods of rain. One can understand the voices of concern when the Pineapple Express or a front from the Gulf of Alaska is bearing down, but those are relatively infrequent events.

But this is Hollywood, where drama rules and where the weather reporters have names like Dallas Raines (actually, Raines is one of the best in the business and is a certified meteorologist).

That’s all for this week. I must hunker down – maybe even change my wiper blades – and start thinking about next week’s article – if there is a next week, to paraphrase the late Don Pardo’s Spanning the World sign-off.

The Republicans are up by two in the US Senate and could very well pick up two more seats (Alaska and Louisiana), giving them 54. With 53 or 54, the GOP will have little worry about one-off defections on some votes that would put Vice President Biden in a position to cast the tiebreaker. 52 seats could be a little dicey for the Senate Majority Leader-Elect McConnell to control on some issues, but he should have his way almost all of the time.

At stake is a stockpile of legislation passed by the Republican House that has been blocked by current Senate Majority Leader Harry Reid. These include jobs bills, ACA fixes and the Keystone Pipeline.

In all, there are about 350 bills on the sideline in the Senate, some with strong bi-partisan support. McConnell will be in a position to cherry-pick which bills advance for consideration. If he is smart, he will be conciliatory to some of his Democratic colleagues by allowing amendments.

Aside from Keystone, only a handful of the stalled bills have star power that will propel them to the headlines and, therefore, become rallying points for supporters and detractors. But there are others, when viewed in the aggregate, could have significant impact on the economy. With some horse trading, McConnell could enlist support from several Democrats to advance his broader Republican agenda by backing bills which will make them look good in their respective states.

The Republicans to be successful, then, need to manage the legislative backlog in the Senate as a whole and not by the individual pieces. While they bemoaned Reid’s iron hand approach to suppressing bills initiated by the House, they now have a stash of ready-made components to package and roll out.

President Obama has the veto power and could block everything, but he would then be viewed as the same obstructionist he accused the Republican leadership of being. In the process, he would likely alienate some Democrats and hurt the party’s appeal in the 2016 elections. Even a lame duck president does not want to do that.

To protect his party, Obama should emulate former presidents Clinton’s and Reagan’s willingness to strike deals and avoid Gerald Ford’s excessive use of vetoes, according to New Your Times columnist Michael Beschloss. Reagan and Clinton are generally admired and respected; Ford is little more than a footnote in history.

No real change ahead

I write almost exclusively about state and local politics, along with a spattering of other subjects.

I have rarely opined on national politics. That’s not going to change other than to say the race for control of the US Senate will not produce a clear winner.

Most experts expect a margin of plus or minus one or two for either party.

Is that enough to formulate significant legislation?

Absolutely not, especially when you can count on a couple of swing votes.

On election night, I will be far more interested in the outcome of certain races, particularly underdog Ashley Swearengin’s bid for State Controller and the heated battle between Sheila Kuehl and Bobby Shriver.

I agree with my Citywatch colleague Ken Alpern: Yes on props 1 and 2, No on 45, 46 and 47.

It so happens I have a class on Tuesday night, so my attention will be diverted to earning more credits towards my CPA license renewal. The subject is pension plans – as most of you know, my favorite topic.

Covering the campaign to replace LA County Supervisor Zev Yaroslavsky should have been near the top of my agenda.

Alas, my schedule has kept me away from home for several weeks during which time the candidates have ratcheted up the intensity.

The last thoughts I shared about Sheila Kuehl and Bobby Shriver go all the way back to the days immediately following the primary. They were positive thoughts.

Things have gotten testy lately, especially with Kuehl’s jabs about Shriver being the youngest child or what his initials stood for. Those remarks are typical trash talk that emerge in any race; they won’t gain or lose any votes. Shriver appeared to ignore them.

But there was one remark by Kuehl which should be taken seriously. She called Nevada foolish for offering Tesla a $1 billion tax break for a battery plant which will eventually employ 6,500 full-time employees and create hundreds of construction jobs. Instead, she stated Nevada would be better off adding 6,500 government jobs.

Two problems with her statement: the tax break is an opportunity cost – not hard dollars – and government jobs come at the expense of the taxpayers.

Nevada is not giving up much, if any, revenue because there is no other employer on the horizon approaching the size and scale of Tesla to occupy the site for the battery factory. In addition, the new jobs will lead to more sales and property tax revenue. I analyzed the deal in an earlier article.

I can overlook her lack of familiarity with the Tesla deal, but her logic that adding government jobs is better than increasing private employment raises very serious questions. Perhaps it was partly hyperbole – politicians are prone to using it – but I sense she is deeply committed to developing a strong alliance with the public unions. They are certainly investing heavily in her – over $2 million.

While both Shriver or Kuehl will have no choice but to work within the County’s current $26 billion budget, Kuehl may be inclined to cement ties with county employees by offering retirement and health benefit enhancements which will burden future years. She could be the swing vote for labor on the board.

Perhaps I am reading too much into her statement, but where there’s smoke, there is fire.

And with important labor negotiations coming up, there will be much pressure by the public unions on Kuehl to deliver. This is an issue that needs to be pressed in the remaining days of the campaign.

The office of State Controller rarely makes the front page. Cash flow management and audits are not the sexiest topics in any government.

Occasionally, it does attract attention, as when John Chiang, the current but termed-out occupant of the office, attempted to enforce Proposition 25′s provision that legislators would be denied their pay if a balanced budget was not passed by the statutory deadline. That was back in June 2011.

A lawsuit filed by none other than John Perez charged Chiang with exceeding his constitutional authority. The court ruled in favor of Perez.

The messy dispute proved two things: never trust a proposition that guarantees accountability, and that Perez was just another political hack with no interest in accountability.

It is ironic, then, that Perez ran for State Controller this year after weakening the office with his lawsuit. Seemingly invincible with the bottomless checkbooks of the public unions behind him, he failed to take in account the competence of his two major opponents.

In a rare victory for the public, intelligence triumphed over arrogance. Ashley Swearengin (Republican) and Betty Yee (Democrat) had superior qualifications. Their combined votes squeezed Perez out of the runoff.

But it was also because the union mantle worked against Perez. “Many fiscally conservative Democrats and independents simply don’t trust a crony of government unions with the state’s books,” according to the Wall Street Journal.

That brings us to today.

With Perez out of the picture, public union support is flowing to Yee, providing her with a funding edge. But Perez enjoyed a 3-1 spending advantage over Yee in the primary and still finished out of the money. Cash may not be as important a factor in a race for a position few voters can define.

Yee has flip-flopped on her position on the expensive high-speed rail project. While originally against it, she now favors it in an attempt to consolidate union and environmental support. Oddly enough, Swearengen also supports it, but she has never changed her position.

Yee serves on the State Board of Equalization, so taxation is a subject she can relate to, but she was also former Governor Gray Davis’ budget director, during which time California went from a surplus position to a deep deficit – not the type of experience you want on your resume. Swearengin is the Mayor of Fresno and won acclaim for saving the city from the brink of bankruptcy. She does not support Neel Kaskkari’s candidacy for governor.

Swearengin is definitely the underdog in the race despite finishing on top in the primary. Experts believe she would have benefited from facing Perez where her gender would have been an asset. She has been endorsed by the Los Angeles Times and the Daily News.

On balance, I favor Swearengin because of her experience as a public and private executive dealing with diverse operations. Yee, although also adept at crunching numbers, has served mostly in a supporting role.

For certain, this is the race that will garner the least attention in part because the two opponents are not dramatically different.


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