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Archive for December, 2009

This has been a subject I’ve visited on more than a few occasions, especially how it relates to independent expenditures.  The IBEW played a huge role in the Essel campaign and lost.  However, the union’s money paid dividends when Greuel won and undoubtedly was a major factor in influencing the Council’s quick approval of the very generous contract recently approved by a 10-0 vote.  After all, what Council Member wants to derail the money train?  I hope Paul Krekorian remembers just how hard D’Arcy’s crew tried to bury him.

This is an e-mail I received from Vic Viereck, a CPA who serves as Treasurer for the Greater Valley Glen NC and is on the executive board of VANC. 

December 31, 2009 CONFLICT OF INTERESTAmongst the political practices creating fiscal problems for local and state (federal too) government agencies throughout our country, a particular Conflict of Interest is at the foundation of those practices. Los Angeles City officials have been pushing ethics standards on neighborhood councils to supposedly prevent Conflict of Interest situations. But it’s elected city officials who are generally amongst those who have a very serious Conflict of Interest.

When government officials negotiate and approve contracts with organizations that are key to the candidates’ political fund raising, they are guilty of a most critical Conflict of Interest. If a candidate for political office, or reelection thereto, receives political campaign funding from a public employee union, he or she should be prohibited from negotiating or voting upon contracts with that union. To fully protect the employees’ right to free speech, they should be allowed to individually make direct donations to candidates of their own choice, without any such prohibitions. Such contributions would naturally be subject to contribution limits to which all others are subject.

In the private sector, unions have succeeded at pricing their members out of jobs. Public employee unions are well on their way to bankrupting the government agencies they work for. It would be best to stop that process before bankruptcy. Considering the particular Conflict of Interest, it would be unrealistic to expect the same officials to invoke the needed prohibitions. It will need a very strong showing of the public to accomplish, if possible.

Such limiting of public employee union influence would be a great New Year’s Resolution.

Vic Viereck

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On the surface, this should be a simple question for me.  After all, I am Paul. However, I am not that Paul.  I’m not talking about Paul Koretz either, but the Paul who just won the CD2 race.  There are just too many Pauls to handle at the moment.

As Paul Krekorian knows, he is entering a chamber that is as dysfunctional as the Assembly in Sacramento.

The City Council is leaderless, rudderless and feckless.

The city is growing financially weaker by the day, yet the Council spends endless hours on how to cut back medical marijuana dispensaries, a problem that should have been resolved a long time ago and is best left in the hands of the City Attorney for now.

Little has been said or done about the budget since the police union wage negotiations still left a $100 million hole this year and perhaps $500 million next year.  Both of the numbers are probably grossly understated.

The pension systems are underfunded by at least a billion dollars; the only action taken by the Council was to approve lengthening (or smoothing) the time horizon, essentially borrowing against the future.

The LAUSD might be the only entity facing the music.  The School Board is telling the employees to take a cut of close to 12% or accept 8,000 layoffs.  I am not suggesting that the LAUSD is a beacon of financial responsibility, not by a long shot, but at least they have recognized that compensation is at the heart of the issue.

So just what should Paul Kerkorian do?

The most important thing he can do is distance himself from the pack in the horseshoe.  It is not as if he will be welcomed with open arms in any event – the majority of the Council supported his opponent.  Besides, does he really want to be associated with failure?

Failure? What about his role in the Assembly you say?

I voiced several concerns about Krekorian’s record during the primary, but I also recognize he was a slave to the partisan divide and the disjointed propositions passed by a schizophrenic public, a combination that guaranteed failure.  He cannot be simply singled out for the sins of everyone.

The city is different.  He will be one of only fifteen.  No Karen Bass or party caucus to smother him. Paul is smart and his intellect will have a chance to shine – if he allows it.

The people need representation.  Not just the residents of CD2 but the taxpayers as a whole.  The current City Council has gone out of its way to please the civilian unions (or at least all but the EAA) and the IBEW.  If there is concern for anyone else, it is not evident.

Krekorian should insist that the budget dominates every meeting until there are plans for this year, next year and the year after with balanced and sustainable assumptions, without any new fees or taxes. 

He should ask the Council and the CAO to seek immediate concessions from the SEIU and its allies for an across the board cut in pay rather than face many thousands of layoffs or more furloughs.   The former, however painful, keeps people employed and services flowing; the latter is a losing strategy for everyone.

If his plea falls on deaf ears, and it probably will, he should use his seat as the bully pulpit and take the case to the public.

The worst that can happen is that Paul Krekorian becomes an outcast to the rest of the Council and its special interests.  However, there is an upside – he will earn the respect of the vast majority of voters.  In my book, respect from the voters trumps the ire of the other Council Members.

In about eighteen months, all the even-numbered seats are up for election.  Some sitting members will be termed-out.  If we continue the current course, the others will face defeat for their role in the demise of the city.  Bankruptcy or the equivalent sticks like white on rice.  I do not think Paul wants rice in his diet.

My best wishes to him for success and for the strength to fight the good fight.

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The Blizzard of DC

This is what my daughter faced when she left the DC area for LA on December 20th.

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“The Los Angeles Budget Challenge survey asks respondents to address next year’s projected General Fund budget deficit of approximately $400 million by making decisions on reductions to programs and services, implementing Citywide cost-cutting measures, and by raising revenue through taxes or other initiatives.”

That’s what DONE’s e-mail to the Neighborhood Councils says about the Mayor’s Budget Survey.

The survey has always been a dog and pony show since its inception.  It is a feel good exercise that provides a cover for City Hall’s ineffective fiscal management.

Consider this: what if you were responsible for your company’s finances?  Let’s say times were tight and difficult decisions had to be made, so you went to see the boss and said you were going to conduct a survey of the investors to ask what they thought the budget priorities should be.  I know the reaction you would get – the boss would say, “Why the hell am I paying you? Get out of here and work with the department managers until you come up with a budget that works!”

Surveys are no substitute for sound decision-making.  We pay our elected officials and general managers excellent salaries and we should expect them to make sensible decisions.  If they are incapable of establishing basic priorities and making tough decisions, why do we pay them?

Do they really need a survey to determine that public safety must be the first order of business, or that all programs be prioritized and deliver a value or benefit greater than the cost?

No decision will be uniformly popular, so they should let common sense prevail and take the heat from whatever segments disagree.  That’s leadership.

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Sometimes when the captain is asleep at the helm ignoring the priorities of the ship, a junior officer has to confront the skipper and make a case for a change in course.

Eric Garcetti (Lieutenant, USNR) should know that more than anyone on the City Council from his naval service.  Furthermore, Lt. Garcetti is the Council President, which makes him the executive officer of the good ship Los Angeles (AKA, Titanic).  That means he is the second-in-command. 

The Council President needs to be a leader, especially in tough times.

The classic play and movie, Mister Roberts, is a tale of contrasting leadership styles: a captain (played by James Cagney) who is isolated from his crew and does not care for their morale, the idealistic executive officer Lt (jg) Roberts (played by Henry Fonda), and the mousey supply officer Ensign Pulver (played by Jack Lemmon).

Roberts confronts the Captain at a key point when the morale of the crew is ready to go overboard.   Ensign Pulver, on the other hand, simply tries to avoid any conflict with the Captain in order to preserve his unchallenging responsibilities as the supply officer.

Is Eric a Mister Roberts or is he an Ensign Pulver?

Mr. Garcetti appears to be content playing the role of Ensign Pulver.  At least that’s the message he gave to Rick Orlov (Daily News, Dec 27th).

“This past year was a year of holding the line,” our Council President told Rick.

That’s right, while Captain Tony was steering the ship straight for the icebergs, did Eric bang on the door and confront him and try to rid the ship of the “malignant growth” that represents the Mayor’s fiscal agenda?

No.

Eric was too busy focusing on golf cart concessions, medical marijuana and fast-tracking compensation deals for the IBEW and SEIU – deals that tore a bigger hole in our floundering ship.  His trepidation in dealing with the city’s financial mess speaks volumes about his leadership skills, or lack thereof.

We need leadership now more than ever.  If Garcetti is serious about becoming Mayor in 2013, he needs to demonstrate he has the stuff of a captain – not a Captain Queeg, Captain Bligh, or a Captain Kangaroo, but a Captain’s Courageous.

Will it take a mutiny to instill decisive action at the top, or confrontation?

The ball is in Eric’s court.  If he wants the job, he needs to show he can handle it.  That has not happened yet.

By the way, Mister Roberts eventually tossed the “malignant growth” overboard (substitute some local politicos for the national figures in this scene).

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I’ve used the “B” word in a few of my articles about Los Angeles – bankruptcy.

Bill Watkins is a professor at California Lutheran University and runs the Center for Economic Research and Forecasting.  He is using the “D” word when discussing California’s sorry financial state – default.

As he points out, there is no law on the books for the state to declare bankruptcy.  Therefore, instead of an orderly process of liquidating obligations and restructuring finances and operating costs, a chaotic free fall will ensue that could destroy investor confidence across the nation and set off a domino effect in other states.

Needless to say, Los Angeles and almost every city in our state will get sucked into this black hole.

Please read Mr.  Watkins’ article in City Watch.  It is concise and will not take more than a few minutes to digest.

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Wendy Greuel and I met this afternoon to talk about issues, audits and the challenges her office faces.  Here’s a summary of what we covered.

We closed the loop on the CD2 race.   Throughout the campaign, I insisted that Chris Essel was her surrogate.  Wendy insisted she did not encourage her.  By the way, in an interview I did with Chris during the campaign, she said Wendy had nothing to do with her decision to run.  In any event, I told Wendy that it was a mistake for Chris to run and that she mishandled the forum questions regarding her prior lack of involvement in CD2.

We both agreed that Essel’s campaign was troubled from the start.  Wendy acknowledged it invited much Monday morning quarterbacking.

We spent the better part of our meeting discussing audit processes.  Risk assessment was the focus of our exchange.  Our approaches are on the same page, but I tended to emphasize the evaluation of internal controls in as many departments as possible as the key.  My belief is that sloppy internal controls not only expose the city to fraud and waste, but are indicative of general inefficiencies in operations.  Wendy’s staff seem to prefer more comprehensive audits.  It is arguable which is the better approach. I suggested we need the equivalent of a Sarbanes-Oxley Act to empower the Controller’s Office and add teeth to enforcing recommendations.   We both agree that the Mayor needs to light a fire under his General Managers to either assure implementation of recommendations or compel departments to state the reasons for not doing so.  We also agreed that blaming job losses from ERIP is not an acceptable excuse for ignoring findings.

The Controller’s Office will launch a website tracking completed audits and their status.  I plan on linking to it and occasionally writing about them and the GM’s responses.  It appears that the site is nearly complete.

Wendy will provide a summary of her department’s strategic audit objectives in the near future that I can post on this blog.  Obviously, it will not tip the Controller’s hand with respect to specific departments.  After all, the element of surprise is critical in some cases.

We briefly covered some of our earlier disagreements.  Wendy recalled Measure S (the phone tax) was our first major difference.

It was a productive discussion and we plan on having more.

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