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Archive for June, 2011

Happy July 4th

First American Flag

I always fly this flag in front of my house for the annual Valley Village Homeowners Association July 4th Parade. 

A number of people ask about it.  It is the Grand Union Flag and was the young nation’s first official colors.  It came into existence in 1775 upon authorization of the Second Continental Congress and flew over Independence Hall at the signing of the Declaration of Independence.  The stars and stripes version created by Betsy Ross was not authorized until June 1777.

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H&R Bach

Michele Bachman has expert credentials when it comes to taxes – a federal tax litigation attorney, a tax attorney and an L.L.M in Tax Law from some college down the road on I-64 from the University of Richmond (I don’t hold that against her).

Say what you want about her, but she is no Sarah Palin.  I don’t know if Palin knows the difference between a short and long form.

I would expect Bachman would lead an intelligent discussion about tax policy, something that has been lacking so far in the buildup to 2012.  What I heard, instead, was a statement that sounded as if it came from the lips of Sarah Palin.

The Congresswoman wants the nation to enjoy a tax holiday for a full year.  Well, if that came to fruition, it would at least put the argument about the debt ceiling on the back burner, and move the United States just below Greece in the world economic pecking order. What’s so bad about that?  We could then get a bailout from China and India.

I am not in favor of raising taxes in this economy, but I am against politicians resorting to pandering.  Quite frankly, it’s insulting.

And before Tea Party advocates jump all over me, I feel the same way about the White House promising more jobs than can possibly be delivered from any program, or the mayor touting all of those well-paying jobs the proposed new stadium will generate – and will likely add to the use of the Earned Income Credit.

 

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By a vote of 3-o The City Council’s Education and Neighborhoods Committee confirmed Bong Hwan “BH” Kim as the permanent General Manager of the Department of Neighborhood Empowerment (DONE).

Kim has qualities that could be put to good use by the neighborhood councils.  His personality and institutional knowledge could aid outreach efforts designed to improve awareness of the councils. I personally like him and could see him in a supporting role.

As a General Manager, however, Kim has been a major disappointment.  While he was aware of serious issues from Laura Chick’s audit report that covered the period of 2003-2006 (Kim was not the GM during that period), he took no measurable action to make corrections during his tenure.

The same problems were still evident when City Controller Greuel’s staff did a follow-up audit in 2009.  To his credit, he requested the audit, but the findings should not have been a surprise to him as neighborhood council members had brought many of the control issues to his attention before.

And what did he expect the audit would yield since he had not taken any action or even developed a plan to deal with the findings of the prior report?

He was clearly in over his head and actually resigned in February 2010 when the mayor proposed moving DONE under the Community Development Department.  He was reappointed, but on an interim basis.

For the good of the neighborhood council system, Kim should have stuck by his resignation.  He could have stayed on in a support capacity to assist a replacement.

The real disappointment, though, is the E&N Committee’s failure to conduct an executive search for a replacement.  DONE, the city and the neighborhood councils deserve the best and brightest for $155,000 per year.  There is zero chance of that now.

Council Member Paul Krekorian, who has done much to support the neighborhood councils, inexplicably dropped the ball on this.

I fear that two years from now, we will find very little has changed at DONE.  It will be up to the personal, unpaid sacrifice of highly motivated NC members to carry the flag.

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What if local and state governments had to carry unfunded pension liabilities on their balance sheets?  Uh, I should say, our balance sheets.

That could ultimately amount to billions of dollars less in equity for the City of Los Angeles.

The iconic capitalist of feature films Gordon Gekko said “Greed, for lack of a better word,  is good.” 

My mantra is “Disclosure, because nothing else matters, is good.”

That’s why I am elated by the prospects of new pension accounting standards under consideration by Governmental Accounting Standards Board (GASB) which would force governments to report unfunded pension liabilities as they would debt obligations.

I sometimes refer to GASB as the Generous Accounting Standards Board because of the way it allows their adherents to play it fast and loose with financial reporting. GASB, with respect to pension accounting, has fostered the equivalent of white-collar crime by ignoring the impact pension obligations have on the taxpayers – that’s us.

If a publicly traded company ignored its true pension liability, shareholders would be lining up to sue and the Department of Justice would indict the senior executives for fraud. 

But here in Los Angeles, and in many cities, counties and states, people like the mayor and Controller Wendy Greuel hide behind a veil that allows them to underreport a potentially huge long-term debt. They don’t give a damn because they would rather not face up to the public union leaders whose support is critical to their careers.

As a result, balanced budgets are not really balanced because the ever-accumulating costs of public pension plans do not have to be considered. Out of sight; out of mind prevails. It’s as if you could ignore your potential long-term healthcare costs when preparing a personal financial plan.

My enthusiasm over the proposed changes is tempered. GASB is not proposing standards for estimating a return rate on pension fund assets, which means LACERS and LAFPP can continue to assume a return of 8% forever for most of the assets. However, they would be forced to use a much more conservative rate for unfunded benefits. This will result in a larger liability than the politicians care to admit.

That would represent a breath of fresh air, but there will be political pressure to keep the rates as high as possible for the funded benefits to offset the dampening effect of the conservative unfunded rate.

The games will go on, but it will be a little harder to fake the results.

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An asteroid is making an uncomfortably close approach to the earth this afternoon.  Just a minor change in trajectory could send it plummeting into the bridge spanning the 405 at Mullholland,

Caltrans would be forced to close the 405 two weeks earlier than planned if the impact occurs.  However, the cost of demolishing the bridge would be greatly reduced.

The reduced costs have already been factored into the next state budget proposal.

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Ignoring the obvious never turns out well.  Even politicians have to admit mistakes; the sooner they do, the better.  Congressman Weiner learned the lesson the hard way.

Assemblyman Mike Gatto’s remarks chastising State Controller Chiang (essentially categorizing him as the equivalent of a school yard bully), and adding how difficult it was going to be to tell his wife and infant child that he would not be able to pay the family’s bills, were as worthy of a retraction as any.  So, Gatto did the right thing and backed off.

The article in the Glendale Press made it unclear if the apology was general as opposed to categorical, but it was still an acknowledgement that the assemblyman had inserted his foot in the mouth.  Many have made similar mistakes and many more will follow.

With that flap behind us, maybe we can all deal with the core issue: who decides if a budget is unbalanced and who makes the decision to cut the pay of the legislators.

Unfortunately, Prop 25 did not address this.  You have to wonder why.

Democratic legislators were heavily in favor of the initiative that would allow a budget passed by a simple majority and cessation of lawmakers’ pay if it was not passed timely.  Not inserting a process to deal with the technicalities indicates that the party leadership did not really want any restraints in developing a budget. 

Governor Brown, to his credit, realized there would be a public outcry if he did not veto the budget. Controller Chiang could not ignore his fiduciary responsibilities to assure there was a reasonable and sound basis to spend taxpayer monies.  I only wish City Controller Greuel would take her responsibilities as seriously. Even without the salary penalty of Prop 25, he could have made a case to withhold payments against such a frivolous budget.

Chiang was correct to fill the vacuum created by Prop 25’s failure to assign enforcement responsibility.  If for nothing else other than by default, his office was the right one to call the shot on denying pay.  The legislature was responsible for developing the budget; therefore, the members lacked the independence to make the call.  Brown, too, had a vested interest in the budget and had his own proposal. Asking the courts to decide if the budget passed muster would allow the judicial arm to micromanage the state.

Since Chiang was not part of the process and shoulders the responsibility for cutting the checks, he was in the best position to pull the trigger on denying pay.

Controllers and CFOs, regardless of whether they work for the public or private sector, profit or non-profit organizations, have to be able to say “no” in order to head off reckless behavior.  They could be held civilly or even criminally responsible if they allow management to ignore its fundamental obligations to the stakeholders – be they taxpayers or investors.

The proposed budget was a fraud; to allow its implementation would have made Chiang a party to it and a target for accusations of dereliction of duty.

For the record, I opposed Prop 25.  Although I supported the concept of a budget approved by a majority vote, I felt it was a dangerous to implement it before the  independent redistricting commission was formed and had a shot at eliminating gerrymandered districts.  A shift away from districts dominated by idealogues to ones represented by more moderate members would go a long way to eliminating  insanity in Sacramento.

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Richmond’s 6-10 forward Justin Harper was picked where he was projected in the NBA draft.

The senior was one of the most versatile players in the NCAA last year: a good rebounder, but with the ability to nail three-pointers consistently.

Harper was a diamond in the rough when he matriculated at Richmond.  He didn’t earn a starting spot in high school until his senior year, but it was apparent he had raw talent.

I first watched him in his freshman year in a game against Louisville.  He sank a series of three-pointers and kept Richmond and its then depleted roster in the game against all odds.

Harper was inconsistent for his first two seasons, but became a factor in the team’s appearance in the 2010 NCAA  and an all-conference star this past season, helping to lead the Spiders to the Sweet Sixteen round in the 2011 tournament.

He is still developing as a player, but he is a mature young man in both the classroom and life. Since he has not reached his potential, the Orlando Magic can look forward to molding him into a solid small forward over the next couple of years.  It is likely he will gain strength and ultimately play power forward.

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