Archive for December, 2010

Happy New Year

A picture perfect end to 2010

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We live in a democracy.  No one group or individual has a monopoly on the type of government running the federal, state or local levels.

Whether we like it or not, compromise is part of governance.  That’s mostly a good thing, especially when you consider the demise of ideological juggernauts such as the former Soviet Union where compromise translated to time in the Gulag for anyone who suggested it.

However, there are a few areas where compromise is undesirable – accountability for one.

It matters not what type of government we have, or who the party in power is, if we spend without regard to results.

California is facing a fiscal adventure this year with its $28 billion deficit and no relief on the horizon from an economic recovery.  The focus will be on balancing the budget; that is my fear.

Regardless of how the budget is balanced, the structural reasons for the growing deficit will still exist if our government does not insist on satisfactory performance from the recipients of our tax dollars.

The LAUSD is a prime example of an organization that absorbs billions of dollars and has so little to show for the outlay.  The school system reminds me of the currency destruction machines the Federal Reserve Bank operations centers use to shred and eliminate old currency – money goes in, confetti comes out.

So I was not sad to hear that the state could be sending $200 million less to the LAUSD.

As cold and hard as that sounds, sometimes the only way for some organizations to achieve cost effectiveness is by cutting their revenue.  The recession has turned many private companies into lean and mean machines.  They learned the hard way.

Necessity is the mother of invention – and it can be a mother – but that’s what it will take for accountability to register with the dinosaur we call the LAUSD.

The LAUSD has produced one of the highest dropout rates in the country over a period when it spent billions on new school construction ($500 million on one school), blew over $200 million on a payroll system that imploded (and may still not be working as desired) and offered (and still does) very generous retirement and health benefits even though it is next to impossible to fire teachers and administrators for poor performance. 

I am convinced the quality of student performance would not measurably improve if we increased the Prop 98 support from 40% of tax revenue to 50%.  By contrast, it probably would not decrease proportionately if the share dropped to 30%.  To the LAUSD, it’s just money – a gift card from the state to use indiscriminately with no consequences for failure.

If we want education reform, we must insist on solid performance. 

Let’s make that an issue in the March elections for the ten candidates who are vying for four seats on the LAUSD Board.

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I attended a performance of West Side Story at the Pantages on Sunday. Thanks to my daughter, we had excellent seats in the mezzanine along the rail.

It is hard to believe that this was the first time I had seen it on stage. 

The cinematic version is etched into my mind, so I felt compelled to compare the two.

The sequence of scenes is significantly different between the two versions, and it materially affects the flow of the story. 

The stage version almost comes across as two separate plays with too little transition. In the movie, the fatal rumble took place late in the story; the play has it right before the end of act one.  Act two opens with “I Feel Pretty.”   While the juxtaposition of a light-hearted scene following a grim one could be an effective technique to carry the emotions of the audience on a roller coaster ride, I prefer the movie’s build-up of the upcoming rumble running parallel to the unfolding tragic romantic relationship between Tony and Maria.  The confluence of the violence with the high point of the love story near the finale made for a more powerful ending.

The movie’s choreography of “America” was also better.  Unlike the play, it involved both the men and women. The male performers complemented their female counterparts.  Their participation not only added to the ensemble quality of the dancing, it enhanced the message of the lyrics. 

Aside from these observations, the play was still a powerful performance well worth watching.

The vocal talents of the cast were excellent.  Of special note, the operatic quality of one of the supporting actresses was superb.

Stage or movie version, I cannot help but recall Norm MacDonald’s classic SNL skit that poked some good-natured fun at the musical.

Still, one of the funniest spoofs was when Madeline Kahn performed “I Feel Pretty” while dressed as the Bride of Frankenstein in an ensemble skit set as a grade B horror film.  I cannot find a link, but the early SNL faithful probably all agree it belongs in the show’s top ten skits of all time.

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Time in a Bottle

I will be publishing the fourth segment of my Civil War Susquicentennial series in January.

However, I thought my readers might be interested in this recent find.  A message to the Confederate General commanding the besieged garrison at Vicksburg was removed from the sealed bottle, where it was contained undisturbed for 147 years, and decoded.

It is worth noting that it would have taken a very short time for a computer to decode this message, which was sent on July 4, 1863 – the day the Confederate forces commanded by General Pemberton surrendered to General Grant. 

I imagine this form of encryption was reasonably effective for its time.

Regardless, the nature of the message was a classic case of “a day late and a dollar short.”

If you haven’t read my series, or missed any parts, just click on the “Civil War Series” in the sidebar.

Here’s the article from the Associated Press:

Dec 25, 2010 – 12:22 PM

Steve Szkotak


RICHMOND, Va. – A glass vial stopped with a cork during the Civil War has been opened, revealing a coded message to the desperate Confederate commander in Vicksburg on the day the Mississippi city fell to Union forces 147 years ago.

The dispatch offered no hope to doomed Lt. Gen. John C. Pemberton: Reinforcements are not on the way.

The encrypted, 6-line message was dated July 4, 1863, the date of Pemberton’s surrender to Union forces led by Ulysses S. Grant, ending the Siege of Vicksburg in what historians say was a turning point midway into the Civil War.

The message is from a Confederate commander on the west side of the Mississippi River across from Pemberton.

Museum of the Confederacy / AP

“He’s saying, ‘I can’t help you. I have no troops, I have no supplies, I have no way to get over there,’ ” Museum of the Confederacy collections manager Catherine M. Wright said of the author of the dispiriting message. “It was just another punctuation mark to just how desperate and dire everything was.”

The bottle, less than 2 inches in length, had sat undisturbed at the museum since 1896. It was a gift from Capt. William A. Smith, of King George County, who served during the Vicksburg siege.

It was Wright who decided to investigate the contents of the strange little bottle containing a tightly wrapped note, a .38-caliber bullet and a white thread.

“Just sort of a curiosity thing,” said Wright. “This notion of, do we have any idea what his message says?”

The answer was no.

Wright asked a local art conservator, Scott Nolley, to examine the clear vial before she attempted to open it. He looked at the bottle under an electron microscope and discovered that salt had bonded the cork tightly to the bottle’s mouth. He put the bottle on a hotplate to expand the glass, used a scalpel to loosen the cork, then gently plucked it out with tweezers.

The sewing thread was looped around the 6 1/2-by-2 1/2-inch paper, which was folded to fit into the bottle. The rolled message was removed and taken to a paper conservator, who successfully unfurled the message.

But the coded message, which appears to be a random collection of letters, did not reveal itself immediately.

Eager to learn the meaning of the code, Wright took the message home for the weekend to decipher. She had no success.

A retired CIA code breaker, David Gaddy, was contacted, and he cracked the code in several weeks.

A Navy cryptologist independently confirmed Gaddy’s interpretation. Cmdr. John B. Hunter, an information warfare officer, said he deciphered the code over two weeks while on deployment aboard an aircraft carrier in the Pacific. A computer could have unscrambled the words in a fraction of the time.

“To me, it was not that difficult,” he said. “I had fun with this and it took me longer than I should have.”

The code is called the “Vigenere cipher,” a centuries-old encryption in which letters of the alphabet are shifted a set number of places so an “a” would become a “d” – essentially, creating words with different letter combinations.

The code was widely used by Southern forces during the Civil War, according to Civil War Times Illustrated.

The source of the message was likely Maj. Gen. John G. Walker, of the Texas Division, who had under his command William Smith, the donor of the bottle.

The full text of the message to Pemberton reads:

“Gen’l Pemberton:

You can expect no help from this side of the river. Let Gen’l Johnston know, if possible, when you can attack the same point on the enemy’s lines. Inform me also and I will endeavor to make a diversion. I have sent some caps (explosive devices). I subjoin a despatch from General Johnston.”

The last line, Wright said, seems to suggest a separate delivery to Pemberton would be the code to break the message.

“The date of this message clearly indicates that this person has no idea that the city is about to be surrendered,” she said.

The Johnston mention in the dispatch is Gen. Joseph E. Johnston, whose 32,000 troops were encamped south of Vicksburg and prevented from assisting Pemberton by Grant’s 35,000 Union troops. Pemberton had held out hope that Johnston would eventually come to his aid.

The message was dispatched during an especially terrible time in Vicksburg. Grant was unsuccessful in defeating Pemberton’s troops on two occasions, so the Union commander instead decided to encircle the city and block the flow of supplies or support.

Many in the city resorted to eating cats, dogs and leather. Soup was made from wallpaper paste.

After a six-week siege, Pemberton relented. Vicksburg, so scarred by the experience, refused to celebrate July 4 for the next 80 years.

So what about the bullet in the bottom of the bottle?

Wright suspects the messenger was instructed to toss the bottle into the river if Union troops intercepted his passage. The weight of the bullet would have carried the corked bottle to the bottom, she said.

For Pemberton, the bottle is symbolic of his lost cause: the bad news never made it to him.

The Confederate messenger probably arrived to the river’s edge and saw a U.S. flag flying over the city.

“He figured out what was going on and said, ‘Well, this is pointless,’ and turned back,” Wright said.

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When Laura Chick served as City Controller for Los Angeles, she gradually came to the understanding that audit reports by themselves meant little.  She became more assertive in her dealings with the mayor as her term in office progressed.

Reports are nothing more than recommendations.  Recommendations are worthless if not enacted or not enacted on a timely basis.

In her letter to the Governor and Governor-elect on December 20th she warns:

“Despite the fact that the state employs many hundreds of auditors…the quality of oversight is not nearly as effective as it should be.  Many departments consider their job, in essence, to be completed once the buck is passed out….In addition, when audits do see the light of day, their recommendations are often ignored, which is why we see repeat findings year after year…” ( Note:  these excerpts can be found in the top two paragraphs on the second page of the letter).

Wendy Greuel is the epitome of a “buck passer.”  She will not press the City Council, mayor and department heads to enact recommendations timely, if at all.  She is content to let them age as uncollected fees are allowed to wither on the vine.  She will not single out the managers responsible for poor internal controls that lead to waste and press for remedial action by City Hall, which could include a call to remove those neglecting the people’s business.

Being a Controller/Auditor is more than just issuing reports, it requires fighting the bureaucracy until desired changes are made. Greuel does not understand that, or worse – she may be afraid to for fear of alienating her political supporters lest it imperil her bid for Mayor.   2013 is not far away and the campaign will start to take shape in 2012.

Even if Greuel reads Chick’s letter,she is unlikely to take its message to heart.

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All of us have probably heard that expression before, and most of us may have used it ourselves.

As reported by both the Los Angeles Times and the Daily News, Mayer Hoffman McCann, the firm that was responsible for auditing the financial statements of Bell, did not believe it was their responsibility to reveal the excessive salaries of the city’s leaders.

All audits involve financial analysis, especially on the front end, to identify inconsistencies.  Ratio analysis between related activities and comparisons with similar organizations are two examples.  Red flags can be raised through this process and additional audit steps taken to resolve seemingly disparate results.

Any comparison of Bell’s salaries with other cities should have raised some red flags. Did the audit firm make such a comparison and, if so, take a closer look at the compensation packages of key officials?

The State Controller’s Office just announced that the firm did not comply with 13 of 17 auditing standards in the 2008-09 audit of the city.  The State Board of Accountancy will review the controller’s report; sanctions could be imposed, including revocation of MHM’s license, if appropriate.

While it is true that normal financial audits conducted to express an opinion on an organization’s financial statements are not designed to detect fraud, especially if it is isolated, they can at least detect the potential for irregularities.  That is, while they may not detect fraud itself, they can  identify weaknesses or data that could lead to fraud or indicate its possible existence when it is pervasive.

It was reported that the Comprehensive Financial Reports of Bell won awards.  I assume these are the same awards that the Government Finance Officers Association has bestowed upon the Los Angeles City Controller’s Office for the financial reports it prepares. Perhaps the award should be named “Form over Substance.” In any event, the awards have no place in a reporting package and could mislead the average reader to conclude the information presented is somehow more reliable.

The Bell mess begs the question – are the disclosures in the financial statements for the City of Los Angeles adequate?

There is no discussion as to the impact health and pension benefit programs have on cost structure of the city. That seems odd since even the city estimates they will represent over one-third of the operating expenses in the near future and continue to grow thereafter.

The firm of Simpson and Simpson, who audits the city’s financial reports, relies on audits of the benefit plans prepared by other firms. 

That is perfectly acceptable and allowable, but will that provide a safe harbor for Simpson and Simpson if the financial situation for Los Angeles continues to unravel? 

It is no secret that government benefit plans, including the city’s, are grossly underfunded.  The problem has been widely reported in local, national and international media for several years and is now more acute because of our economic turmoil.

You would think, then, that Simpson and Simpson would consider scratching beneath the surface of these other reports in light of what many respected financial professionals and academics are saying about the unsustainability of these plans.

Technically, Simpson and Simpson can say, “it’s not our job.”

However, if the city continues to head down the road to bankruptcy and devolves into a shell offering little in the way of core services, people may take a different view. Simpson and Simpson could have to answer some tough questions in a few years as the Bell auditors are now.

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Before the Richmond Spiders basketball program went into the tank for a few years courtesy of Coach Jerry Wainwright( who left after 2005 and then proceeded to derail DePaul’s program), the team was competitive and almost always had an impact in the postseason, including first round wins in the NCAA tournament as 12th, 13th, 14th and 15th seeds.

That’s a string no other team can claim.

John Beilein was part of that legacy.  He left Richmond in excellent shape when he jumped to West Virginia.  The Mountaineers were struggling, but Beilein turned them around. The team went deep into the NCAA tournament (the Elite Eight and Sweet Sixteen rounds) and captured an NIT title.

He was named Michigan’s head coach in 2007 and appears to be reviving that program.

Don’t be surprised if the Wolverines make some noise in the NCAA this year.  It would be ironic if they face the Spiders in the first round.

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State Treasurer Bill Lockyer wrote what amounted to a pep talk in the Los Angeles Times.

He proclaimed the state is not broken.

His message was a sharp contrast to the one broadcast on 60 Minutes last Sunday, which painted a realistic picture of the fiscal swamp where states and local governments are mired.

He is correct on a couple of points:  the state is unlikely to default on its bond obligations since debt service is a constitutional priority over every other service other than education.

He also wrote, “Fiscally, we have to get smarter, think longer and stop hoping for a miracle. Californians have to assume more responsibility for deciding what they want government to do and how much they’re willing to pay for public services. We have to design a saner system for financing public schools.”

Fine, but he is not telling the whole story.

Sure, the state will be able to pay its obligations – at the expense of the counties and cities.  State funding to local governments will slow to a trickle.

It is also nice that he thinks Californians will be able to reconcile their desire for government services with their ability and willingness to pay for them. Nigerian e-mail scammers will make good on their promises before that happens.

Lockyer should level with us and challenge the legislature to stop whining and cut more, because the reality is that there will be no meaningful tax increases approved unless the public can be convinced that the state is doing everything possible to manage costs and performance.

That’s a tall order, but the sooner we start, the faster the pain will subside – and it will hurt.

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City officials have a habit of blaming the city’s deficit on “the worst recession since the last depression.” 

That statement has become a mantra of denial, more so this year than in the prior ones.

If it had been a matter of simply misjudging the severity of the recession, you could cut them a little slack. However, in the years leading up to the bubble bursting,  all of our officials completely ignored the possible consequences of super-heated real estate prices coupled with easy credit.  It was as if they thought the party would never end, even in the year preceding the collapse when jitters were being felt in the markets.

No attempt was made to curb spending or deal with the escalating costs of pension and health benefits. 

You would figure, though, that by 2010 the Mayor, City Council and Controller would have come to their senses and started to address the long-term structural aspects of the deficit.

Instead, no meaningful labor negotiations seeking major concessions took place.  A proposed ballot measure that calls for nominal increases in contributions by sworn employees was the pitiful extent of our government’s efforts.  Without significant concessions, Los Angeles is on the path to bankruptcy.   Yet, the mayor and his allies refuse to acknowledge the severity of the situation. 

To make matters worse, in the face of rising utility costs, general fund employees were transferred to the DWP to make it appear as if there were layoffs.  These transfers added to the cost structure of the utility, already hard-pressed to replace infrastructure and migrate to pricier green power.

The costly early retirement program (ERIP) started in 2009 added to the ever-growing burden of funding the civilian pension plan, yet the city could not even bring itself to create a new tier based on a contributory plan that would relieve taxpayers of absorbing the market risk associated with the plan’s investments. The only risk our officials fear is that of alienating the unions.

The current year’s deficit has not been closed and an even larger one looms next year.

Our officials have not only buried their heads in the sand, they have burrowed deep beneath the earth – enough to dig the tunnel for the subway to the sea.

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