Before meeting with Carmen, I made a point of reviewing the Estimated Claims and Judgments Payable Footnote of the city’s last complete set of financial statements posted on the Controller’s website. The statements were for the Fiscal Year Ended 6/30/08, so the information is stale.
At that point in time, the potential liability was $518 million, broken down into two categories:
Probable liability…………$376M
Reasonable possibility …$142M
Note: comparable disclosures were not included in 2007. I will ask the Controller’s Office if it is available from the workpapers.
I asked Carmen what the current prognosis was. He did not have the number available but did mention his Office’s successful trend of defeating suits brought against the city – some 27 straight victories. He claimed his aggressive approach represents a change in strategy over his predecessor’s, a shift that may discourage some new litigation.
Still, $518M is a huge nut to crack. Tru has a reputation as a tough advocate, but no one is Perry Mason. What’s more, these cases were inherited from his predecessor. There will probably be losses. This will be worth following up in a later discussion with Carmen. I would also like to discuss this with Wendy at our next opportunity.
So how much of a contingent liability are we facing and has the Mayor’s team included an estimation for it in the budget projection? CAO Miguel Santana did not mention litigation contingencies in his budget presentation on Monday night.
Curt Livesay, Tru’s Chief Legal Advisor, mentioned that a major loss would be bonded and paid over time. However, he agreed that it would add to the city’s debt service.
Even if 25% of 2008′s potential liability resulted in losses, it would inhibit our ability to re-establish the nearly depleted reserves.
I will post the third part – performance audits – tomorrow.
Paul Hatfield
Suzanne Lauer
[...] Village to Village by Paul Hatfield, Jan. 27, 2010 [...]
Note that the City is bonding the payment of judgements. In the real world, you would expense an average every year and bond the overage.
Nuch appears to be doing a good job. Rocky and Jimmy Hahn were pushovers for the plantiffs bar.
Maybe the City Council will allocate more to the CA’s office so that he can go on the offense against habitual offenders of our laws, like some of the real estate developers or service providers who don’t pay their bills.
Usually, companies establisg specific and general reserves for litigation. When I was a corporate accounting manager and controller, I would work through the cases with the legal staff at least once a year. We would chrage it against the P&L. Since the city essentially operates on a cash basis, they should put aside real money to cover litigation, not just assume it will be covered by normal revenue.