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Archive for March, 2011

When Governor Brown announced an end to budget negotiations with the Republicans who dared to defy their party’s mandate concerning taxes, little information was provided by either side as to the reasons for the breakdown.

Sure, there were accusations – Brown stated it was about tax breaks for corporations and a seven-page list of concessions supposedly provided by the Republicans at the last-minute.  GOP Senator Bob Huff said his team was not asking for everything, but for concessions on major issues only.  Brown’s willingness to accept major changes to pensions was questioned.

Unfortunately, negotiations were behind closed doors, so we can only speculate what the major sticking points were, but I imagine they were known almost all along by Brown and Huff.  Therefore, the terse break-off had more to do with the clock running out for getting a measure on the June ballot.  It was simply an opportunity for Brown to engage in theatrics, something he knew for weeks would happen.

Quite frankly, both sides knew from the start that the gulf would be too wide, but went through the motions for appearance sake.

The seven-page list containing fifty-three items that Brown objected to was probably a recap of many talking points, both formal and informal, over the many weeks.  I really doubt there were any surprises. 

The budget discussions, then, were nothing more than a warm-up for a showdown on pension reform and spending caps.

Spending caps might be the easier of the two to settle.  Pension reforms might be a different matter since there may not be unanimity even among Republicans

It is important to note that Brown did not say discussions were dead. He acknowledged that the problems accumulated over decades and would take time to resolve.

In my view, there should be no extensions without pension reform.  Reforms must include a timetable for weaning employees off of defined benefit plans and significantly increasing employee contribution rates to shield the taxpayers from market risk.  Much higher contributions to health plans should also be mandatory.

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This is the time of year that drives accountants crazy, but it has nothing to do with income taxes.

Business owners who dutifully file returns with government departments, such as the Los Angeles Office of Finance and the State Board of Equalization, receive reminders many days after filings have been completed on-line even though an official confirmation number was provided.

Mailing these reminders must cost money state and local governments can ill afford to spend.

I could understand receiving a reminder a couple of weeks after a manual return is filed, but two weeks after one was filed on-line and acknowledged is indicative of poor billing and receivable systems.

Information technology is another piece of the infrastructure that has been allowed to deteriorate.  Politicians spending money to improve efficiency is not as self-rewarding as giving it away in the form of compensation and benefits.  Accounting and information systems don’t contribute to campaign war chests; union members do, although the rank and file have little say in the matter.

If we want to attract and retain businesses, our governments must have the capability to professionally service them.

Efficient billing systems provide two benefits:  less frustration on the part of the customer/taxpayer and better collection rates for the government unit.  Both sides will spend less time per transaction – that’s a win-win.

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The Lake Tahoe snowpack is 176% of normal, which is probably indicative of the Sierra as a whole.

The powerful winter storms have left the ski resorts with 12 – 25 foot bases.

They have kept me busy as well – I have been shoveling off and on since Thanksgiving.

Futility

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The mayor knows all too well that most Angelenos don’t look beyond the gross numbers.

When they hear of $400 million in savings from the pension and benefit deal tentatively approved last Thursday, many will conclude that the city’s deficit, with estimates ranging from $400 million to $500 million through the next fiscal year, has been largely resolved.

He called it a watershed moment.

The reality is that $400 million is spread out over three to four years, but the deficit will still continue to grow by $300 million and up for at least the next four years net of the savings.  Even if concessions are won from Police and Fire, the gap will still be at least $200 million per year.

What’s more, the safety valve provided by furloughs has been turned off as a result of the deal, leaving only layoffs as the remaining firewall between insolvency and survival.

The proposed agreement does not even address the unfunded pension liability estimated to be at least $1 billion.  At some point, that needs to be amortized through even higher contributions.  Doing that will become more difficult with retirees nearly equal in number to active employees as of today – there will be an increasingly smaller base available to cover overcommitments made to those already receiving pension and retiree healthcare benefits.

The mayor and the unions were obviously more concerned in presenting the appearance of progress by not informing the public of the still bleak forecast of the city’s financial condition.

Taking the projected savings out of the context of the overall long-term picture is plainly deceitful.

It will be interesting to see how each Council Member weighs in on the tentative package.

We already know Garcetti supports it unconditionally.  I would assume that Koretz and Huizar will go along with him.  You can count on Controller Greuel to buy into it – she probably hasn’t even considered the city’s financial condition beyond the next month, so what’s it to her?

The issue here goes beyond the inadequacy of the proposal.  The agreement must be framed within the long-term strategy needed to save the city in terms the general public can appreciate.  The mayor avoided doing that.  Full disclosure is not his thing.

We need the media more than ever to put this story in perspective and keep the mayor honest – excuse me, I meant to say to keep him less deceptive.

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The Daily News reported a tentative agreement between the Coalition of City Unions and the city.

The provisions call for increasing the employee retirement contributions from 6% to 11%,  healthcare from zero to 2% – rising to 4% next year – and elimination of cash overtime. The expected savings amount to $400 million over the next four years.

Based on this limited information, there is only a little to cheer about.  Los Angeles is facing a $400 million deficit through next year alone, so savings of $100 million per year barely make a dent in the problem.

The elimination of cash overtime sound a lot like a cost deferral – not a savings.  I assume employees will earn vacation in lieu of paid overtime, but a liability is incurred if that is the case.

More detail is needed before further comments.

Update: According to another source, the savings would amount to only $200 million over several years.

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That’s all the information I have.

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California State Senate Leader Darrell Steinberg could have been a bit more straightforward about the cost of extending temporary sales, income and car taxes that have either expired or will expire.

He stated that it would cost every man, woman and child $260 per year.

There was a comedy routine by the late George Carlin delivered in the same style as his “hippy dippy weatherman” character.  He portrayed a TV pitchman promoting the complete record collection of every song you have hummed since childhood.

“And what does this incredible offer cost?”

“Only twenty-five cents per pound! 

In a more subdued voice he qualified, “Based on the weight, that works out to be $150,000….plus shipping.”

The only problem with Steinberg’s characterization is that the Senator is not a comedian….and I hope he doesn’t try doing the weather report.

I’m surprised he didn’t include cats and dogs in the base.  The cost, then, would have worked out to about two bucks each, making the deal as attractive as the popular wine sold at Trader Joe’s.

It is always important to use a relevent unit of measurement.  Would it make sense to measure gasoline usage as inches per gallon? 

I know of very few children who pay taxes.  Most married couples file a joint return.  Families and domestic partners usually pool their purchases.

The average household size in California is close to 3.7.  In other words, the average cost is actually 3.7 times $260, or $962 per household, per year.

That’s nothing for some families, but would be a hardship for many, especially when you consider the regressive elements represented by the vehicle use tax and sales tax.

Having said that, I’m not opposed to a tax extension, but there must be some serious quid pro quo to win me over. 

It is unfortunate that the five Republicans attempting to negotiate with the Governor are being vilified by their colleagues.  They might be the only five legislators in the state with common sense.  They want spending caps and pension reform in return for supporting a ballot measure on the taxes.

Permanent structural changes that wean the state from defined benefit pension plans and bargain-basement employee health care contributions represent a fair trade for a five-year tax extension.

The fact that the negotiations have yielded nothing only demonstrates the fear the Governor must have of the public unions.  That’s unfortunate because I believe that Brown wouldn’t mind agreeing to major concessions if union leaders wouldn’t pounce on him if he did.

But that’s the way it is in California, but it is not a laughing matter.

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