Did You See the Memo About This?

Any fan of the movie Office Space is familiar with the classic line spoken by the boss: “Did you see the memo about this?”

I think the Mayor, Bernard Parks and Eric Garcetti did.  It was written by CAO Miguel Santana and it was not about TPS report cover sheets.

You can see it as well right here.

http://phinvv.files.wordpress.com/2010/02/09-0600-s159_rpt_cao_2-9-10.pdf

In a nutshell, it’s about raiding the reserve fund to plug the deficit:

Even with the adoption of the measures outlined here, which includes the depletion of the Reserve Fund, significant work remains to be done to address the remaining deficit of $281.8 million in 2010-11.

The $281.8M is after an extensive series of cuts, including the proposed layoffs of 1,000 civilian employees employees, as well as laying off probationary police officers.  Without those cuts, the projected deficit for next year will be $484 million.

What does $281.8 million translate to?  Santana provides the answer:

This deficit equates to the full-year salaries plus pension contribution costs of 3,665 civilian employees. Delays in implementing any savings measures will only cause this deficit to grow.

That’s about $77,000 per employee, which gives you some idea of the compensation package offered by the city and why we need concessions from the unions to fix the deficit.

Credit Rating Agencies Concerned with Lack of Progress and Leadership at City Hall to Fix the Budget

CAO Miguel Santana issued this memo to the Mayor and City Council about his recent contacts with Fitch and Moody’s rating agencies: 

http://phinvv.files.wordpress.com/2010/02/caomemo.pdf 

Some key excerpts: 

Fitch pointed to three areas that would cause the further downgrade of the City’s ratings: 

1. Worsening general fund structural imbalances in an environment of declining tax revenues, a softening property market, and rising personnel-related costs; 

2. Failure to achieve long-term personnel cost reductions, particularly through reduction in work force size and modified benefits entitlements; and, 

3. Ongoing erosion of general fund reserves. 

Fitch is concerned that we have no political consensus between the Mayor and the President of the City Council… 

Moody’s expressed concerns that the City Council had not adopted the necessary budget-balancing recommendations provided in the CAO’s mid-year report, as it had in years past. 

Once again, our Mayor and City Council are failing to perform their fiduciary responsibilities; we will be the ones that pay.  The pain won’t be limited to higher interest rates either.  By putting off dealing with the crisis for so long, our elected officials will feel compelled to make ill-advised one-off decisions to plug the deficit.  There will be long-term adverse consequences in the form of diminished revenues and higher pension costs. 

  

  

 

 

 

URGENT !!!!!!! – EVACUATIONS ORDERED FOR FOOTHILL COMMUNITIES

EVACUATIONS MUST BE COMPLETED BY TUESDAY FEBRUARY 9 AT 10AM.

The Foothills Incident Unified Command has ordered mandatory evacuations tomorrow, (Tuesday, February 9,) due to the risk of debris flows in the Station Fire burn area.

Evacuations have been ordered for areas of:

La Crescenta

La Canada Flintridge

Acton.

Affected residents are being notified through Alert LA County and by door-to-door notification by LA County Sheriff’s deputies. A full address list of affected homes is available on the Coordinated Agency Recovery Effort (CARE) website at http://www.dpwcare.org.

Evacuations must be completed by 10 a.m. Affected residents and residents of flood-prone areas are urged not to leave vehicles or trash bins in the street.

The evacuations have been ordered as a safety precaution following predictions of rainfall Tuesday and Wednesday. Residents are strongly urged to comply with the evacuation orders.

American Red Cross has established evacuation shelters for La Canada and La Cresenta at:

Holy Redeemer Catholic Church, 2411 Montrose Avenue, Montrose, CA 91020 and in Acton at Acton Community Center, 3748 Nichols St., Acton, CA 93510.

DC Snowmageddon

The Nation’s Capital was closed down today by the second blizzard to hit there in less than two months.  Another foot is expected this week.

This scene is in Arlington, Virginia, close to the Pentagon. 

Thanks for the pic, Jeni.

Blue Monday

Lake Tahoe from Diamond peak in Incline Village

Krekorian’s Early Report Card

So far, Paul Krekorian seems to be pushing the right agenda.  He introduced a motion to rewrite the SB1818 implementation ordinance (the existing one defeats the purpose of the increasing affordable housing and allows developers to ignore the implications of density); he fought vigorously to block a SB1818 project in Valley Village along narrow and crowded Magnolia Boulevard; he recognized that bankruptcy cannot simply be dismissed as an option in dealing with the city’s financial crisis as it has by the Mayor.

If there is one potential negative, it was what was reported in Paul’s newsletter on February 5^th  concerning the City Council’s decision not to reduce funding for the arts.

“I have a long and proven track record of fighting for public funding for the arts, which are an integral part of our quality of life and our economy in Los Angeles,” Councilmember Krekorian said. “But the magnitude of the fiscal crisis we face is nothing short of disastrous.  We need to be forthright in acknowledging that, at least until the economy begins to improve, every area of city spending is going to be hurt. Some reductions in arts funding will be nearly inevitable, but at least for now we have avoided the most devastating impacts.”

While he recognizes that cuts are inevitable, by not putting recommendations on the table for reductions now, it could lead to spurious cost cutting decisions in vital or more widely used services.

This amounts to protectionism, however well intended.  Unless all of our Council Members put the self-interests of key supporters aside, important core services will suffer over and above what is necessary.

We should all recognize that discretionary programs and services, regardless of popularity or aesthetics, have to be on the chopping block.  Such programs could be brought back in a few years if the city devises a sustainable financial plan.

Updated information:  Prior to this, Paul seconded a motion to cut the earmarks received from hotel room taxes.  The motion, which was supported by six Council Members, was shelved.  Eric Garcetti said modifications would be necessary before a vote could be taken.

CHP Leading the Way on Pension Reform: A Small Step, but an Important One

This is a must read article by Ed Mendel posted in his CalPensions blog.

CHP Union head Jon Hamm sees the handwriting on the wall.  He is considering a new and lower benefit tier for new hires.  He does not want to wait until taxpayer frustration with pension costs boils over, leading to a potentially more restrictive voter initiative.

Here are Hamm’s thoughts expressed in the article: 

…he is concerned about “pension envy” among private-sector workers with dwindling retirement security as corporations switch to 401(k) individual investment plans.

Hamm said “public employee unions are becoming villains” because some are playing on public fears. He also said assuming that economic growth will return to “normal” and generate the big pension investment earnings of the past could backfire.

Although a new tier will not solve the current unfunded pension liability for the CHP any more than it would for other unions, it is a solid step forward that will mitigate the damage.  In the very long run (at least a generation or two), it could eliminate most of the unfunded liability.

The Coalition of City Unions is against the creation of a separate tier for its new hires.  Their reasons are purely selfish.

Other measures will be necessary as well, including the replacement of defined benefit with defined contribution plans.

The Budget Calculator

I’ve been intrigued by the Mayor’s budget calculator ever since the rollout of the Budget Survey.  I figured there must be substantial artificial intelligence behind it.  Exactly what does the calculator look like? 

I breached City Hall’s security and found it in the Information Technology department.  This picture was taken at great risk to my safety during a secret demonstration of the calculator conducted by Mayor, who wore a disguise for security purposes. 

This is very disturbing.

I thought I would add that this frame is from the sci-fi classic Forbidden Planet.  Many of you will recognize Walter Pidgeon, who played Doctor Morbius.  Leslie Nielsen played the starship captain.  Even then, you could catch a glimpse of his deadpan humor that became famous in the Naked Gun movies.  Anne Francis displayed the best legs on either end of the galaxy.  There is also a brief scene where she has packed her belongings to return to earth on the starship.  It would have been an inspiration for a Barbie Doll had Mattel been producing the product at the time.

Following up with Wendy

I had an opportunity to meet privately with Wendy Greuel prior to today’s LANCC meeting. 

It was not a Q&A.  Instead it was covering some issues we had discussed before and talking about the budget, especially how it relates to DONE.

Wendy also addressed LANCC and took questions.  Michael “Coppola”Cohen filmed it, so watch for it at a PC near you.  Insist on the director’s cut.

I was very frank when I told her it would be impossible for DONE to manage its finances going forward even if a system and training were provided.  The same problems would reoccur within a year.  Outsourcing is unavoidable. By the way, that was also the consensus of the attendees at the LANCC meeting.

We discussed the accounting internship program I floated last week.  Accounting students from local universities could work under the supervision of the City Controller’s staff to perform the forensic tasks needed to reconstruct DONE’s financial records.  The students would work for graduation credits.  Interns could also be used to support NCs who may need help with maintaining their books.

We revisited the subject of performance audits of elected officials.  I told her a system that amounted to “Mutually Assured Destruction,” as Carmen Trutanich described it, would not work.  No one would dare conduct an audit for fear of retaliation from another official.  The approach may have worked in the Cold War, but it did not make sense for the city.

I stressed the need to develop objective standards in collaboration with the other electeds and with input from Neighborhood Councils.  Without standards, it would be pointless to pursue such audits.

Wendy said her office could work through the scheduled financial audits for this year, but next year will be a challenge due to staff losses from ERIP (I have to admit it is  ironic that Wendy voted for ERIP in her final days as a Council Member.  The old adage, “Be careful what you wish for…” has particular meaning here).

I think even if an agreement to conduct performance audits with her peers was in place, it would be a moot  for the next few years due to budget restrictions, so why not devote the necessary time to establish standards and do it right, rather than waste time on a “MAD” Charter Amendment that will amount to window dressing.

Wendy’s ability to use external resources to assist with audits will likely be reduced.  This is unfortunate in my view.  Inevitably, auditors need access to experts on specific issues.  Even the biggest and best CPA firms require professionals from other fields to guide them.

I told her that both the City Attorney and City Controller should be empowered to submit budgets directly to the City Council rather than let the Mayor’s office drive the process.  Checks and balances are being compromised by his involvement.

She will be pressing General Managers to respond to the outstanding recommendations from audits conducted by Laura Chick without waiting for the City Council to intervene.  Only time will tell if her efforts are fruitful.  It gets back to the lack of enforcement powers assigned to the City Controller.  Talk about a need for a Charter Amendment.

E-mails from the Mayor

I received the following e-mail from the Mayor today:

 

Dear Angelenos, 

Yesterday, I made the announcement that City Hall must layoff or transfer 1,000 employees. This is not a decision that I take lightly, however the gravity of the situation we face requires swift action and decisive leadership. 

I want to share with you this budget calculator that we created to help people understand the tough choices we face as we try to balance our budget, get our fiscal house in order, and create a sustainable financial future for the City of Los Angeles. 

In my mind, when the option is between fully funding our Police and Fire departments or operating golf courses and managing parking structures, there is really no choice to be made – public safety comes first. Most of these decisions are not as straightforward and easy to make, but I refuse to defer them simply because they are difficult. Funding cuts, layoffs and transfers may be unpopular, but we cannot afford to pass on these decisions just because it would be safer politically to do so. 

Every day we that put off making a decision, the city loses another $300,000. With a $212 million budget gap to close by the end of this fiscal year, we cannot afford to be driven further into the hole. 

I am confident that we can work together to restore fiscal health to our system. It won’t be easy, but it is the right thing to do.

[Take the LA Budget Challenge]

Yours,
Antonio Villariagosa 

The subject line was “Take the Budget Challenge.”  It made me think of the classic Henny Youngman one-liner:  “Take my wife – please!” 

It’s as if the Mayor was saying “will someone take this off of my hands?” 

Perhaps the subject line should have stated “Take the Budget Challenged,”  but I don’t know if anyone would take the Mayor. Rimshot. 

And what about his Budget Calculator?  Can it calculate tips?  Is it more reliable than the calculator Jerry Seinfeld purchased for his Dad who was running for condo president in La Boca Vista? 

Maybe that will be Villaraigosa’s next stop in his political career.  It should, because his calculator has very limited functions. It may not even be of much use in La Boca Vista.  For one thing, Morty’s condo development probably has a balanced budget. 

As I advised my readers in an earlier article, don’t answer the questions in the survey.  They are tailored to support the Mayor’s myopic vision of how to save the city from financial ruin. 

Send him an e-mail instead using the comment feature.  Let him know he has squandered any credibility he ever had.  Tell him to move to La Boca Vista, but do not suggest he run for the board.  It’s in better hands with Morty.