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Archive for June, 2011

The state legislative chambers have been filled with the sounds of weeping and gnashing of teeth in the wake of State Controller John Chiang’s decision to halt the pay of lawmakers over failing to produce a balanced budget on time as required by Proposition 25.

Perhaps the most anguished cry came from Assemblyman Mike Gatto: “I now have to explain to my wife and daughter that we won’t be able to pay the bills because a politician chose to grandstand at our expense.”

According to biographical information available on the internet, Mike Gatto’s daughter is one-year-old.

Discussing finances with a thirteen-year-old is challenging enough, so how Mr. Gatto is going to break the bad news to his toddler is something he should share with a child psychologist.  He could traumatize the kid for life if he is not careful about it.

If he can figure out how to get his child to understand his personal budgetary woes, maybe he can educate his colleagues about the importance of a balanced state budget. Not only would he be smarter than a one-year-old, he would be smarter than Assemblyman Bob Blumenfield, who said Chiang acted “without clear legal authority. He has confused having the responsibility to cut checks with having the authority to be a judge and jury on the budget.”

Just who did Blumenfield think should make the decision over whether pay should be withheld –  the legislature?  That would appear to be a conflict of interest.

Who better to make the decision than the person with the responsibility of paying the state’s bills?

Lawmakers may challenge Chiang’s decision in court.  Maybe they will win, but, if they do, let this be a lesson never to trust a ballot measure designed to expand the powers of legislators.

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It was fitting that on the first day of summer the temperature soared to 90.

This classic piece should cool you down.

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Foreclosures and unsold housing inventory pose one of the greatest threats to social order in this country.

Aside from being a blight on the landscape and the health hazards some of them pose, they have obliterated the equity of many responsible homeowners.  It is hard to believe that no executives from the largest lending institutions went to jail.

The poster boy of the housing crisis, Angelo Mozilo, got off with a slap on the wrist from the SEC, contrary to the spin by the regulators. The Department of Justice dropped its criminal investigation of Mozilo and his key lieutenants.  The economic damage Countrywide and other giant lenders caused is infinitely greater than the sum of the fines levied.

The problems go further than financial loss; the remnants of their greed are supporting criminal elements, including Mexican drug cartels.

An interesting report from the NPR affiliate in Phoenix stated that about five-hundred foreclosed or abandoned homes are now drop houses for storing illegal drugs.  Unsavory leasing agents are renting properties to criminal elements.  It is uncertain how many of the owners are aware of the alternative uses of their properties.  They are just happy about earning rent.

Here in the city of Los Angeles, we do not have swaths of empty subdivisions as there are in the exburbs, but there are unoccupied homes not being maintained in almost all of our neighborhoods. Some of these homes have become dumping grounds for large items – from furniture to mattresses to assorted junk.  The grounds have become weed patches.

In essence, these properties are the epitome of the “broken window syndrome” and will attract gang activity and taggers if left unabated.

Do not tolerate them.  The owners could be cited by the City Attorney, but they have to be reported by citizens.  Lenders are subject to fines for not maintaining bank owned houses. Work with your local neighborhood councils to launch a concerted effort to enlist assistance from the city to pursue action against the owners and secure the properties. 

If we tolerate neglect by individuals and banks, we will all suffer.

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Wendy Greuel’s report of May 19 addressing shortcomings in the parking citation collection process also exposes inadequate procedures within her own department – the Office of the City Controller.

The Department of Transportation had at least $270 million in delinquent accounts over five years old, but never written off.

She downplayed the impact of the delinquencies because citations over five years old are kept in DOT’s inactive files and not included in the city’s official financial statements. However, what Greuel does not disclose is that this means the controller’s office is not performing an accounts receivable rollforward, which is an important standard operating procedure in any well run organization, and in quite a few poorly run ones as well. It provides an excellent test of the balances’s reasonableness.

For the non accountants out there, here is how it works (the amounts are examples only):

The Ending Receivable Balance from the prior year………$ 1,000,000

New billings (citations in the case of the city)………………………200,000

Less: amount collected in the year………………………………………(300,000)

Less: Reserve for uncollectible citations…………………………….(   50,000)

Ending Balance……………………………………………………………………..$ 850,000

Given that uncollectible activity was not being reported or disclosed, the rollforward would have produced an expected balance of $900,000 , but DOT would have reported the receivable balance net, or $850,000. The difference of $50,000 would have been evident and served as a red flag for the controller’s staff to determine why it existed.

Evidently, the internal controls and procedures are weak when a simple analysis that would have warned of a problem – especially one for $270 million – was not performed. Greuel is simply taking departmental numbers without testing them for reasonableness.

We cannot keep electing politicians who have zero knowledge of financial management to a post as important as City Controller.

You have to wonder what else is being overlooked.

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Governor Brown did the only thing he could do when he was presented with a frivolous budget bill from the legislature: he vetoed it.

I do not envy Brown’s position at all.  He is squeezed between the proverbial rock and a hard place, but he can only blame himself for his predicament.

The Governor must make meaningful concessions on a spending cap and pension reform to win over enough Republican votes to construct a budget that can pass the smell test..and then some.

But how will he do that?

If it were just a spending cap, a reasonable compromise would be attainable.  There would be give and take and no one will be truly happy, but that is what compromise is all about. He only needs to deal with the leadership of both parties to reach an agreement on a cap.

Pension reform is another matter.  The unions will become an uncontrollable party to the negotiations. Brown’s political career is largely attributable to broad union support.  To offer the pension reforms many in the state would like to have, but especially the Republican leadership, he will  alienate his union connections. He will also alienate the Democrats who control the legislature.

The outcome from redistricting is a factor Brown must consider, too.  There are enough fiscally conservative Democrats who will be less likely to support their party in the post redistricting Assembly and Senate races if they believe Brown and the Democratic leadership did not do enough to rein in state employee benefits.

The Governor’s situation is more like being caught between an avalanche and a chasm.

It is the job he chose; he has to deal with it.

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Paul Koretz, in an article published by Citywatch, made a case for the importance of deliberation.  He was referring to his role as a City Council Member, but his remarks apply equally well to neighborhood councils.

Concerning the debate in his district over mansionization, he stated:

I could have unilaterally sought changes to zoning rules in this neighborhood — the law and City Council system certainly allow me to do so — but I did not. That’s because I firmly believe in dialoging and working with constituents and constituent organizations in order to maximize public input and grassroots involvement.

In other words, I am a proponent of having a process in which people from the community are invited to participate and be heard. The fact is public-participation leads to better proposals and better results.

Neighborhood councils are regularly approached by groups representing various causes. In many cases, presentations are made with the goal of informing  board members about specific issues.  The input is welcome and, if appropriate, considered at a later date when or if action is required.

Sometimes, a motion has to be expedited.  That was the case with Measure B.  The City Council rushed it to the ballot leaving the neighborhood councils little time to act.

Occasionally, though, some groups push for a motion right then and there even when there is no immediate need for one. It is as if no other side should be heard and nothing else matters.

I already discussed the Sierra Club’s attempt to have Neighborhood Council Valley Village push a motion through in support of no coal by 2020. The presenter cited the opinion of a consulting group engaged by the Sierra Club that claimed the city could transition completely away from coal by that year without a measurable rate impact on DWP’s customers. 

One must take the claims made by consultants engaged by interest groups with a healthy dose of skepticism, as we did with the research results of scientists hired by tobacco companies claiming second-hand smoke was harmless.

If getting off coal by 2020 could be accomplished with little or no effect on rates, there would be little or no opposition to the objective.  However, no one really knows the answer at this point. It makes no sense to buy into a long-term strategy when there is little certainty as to the cost. 

Besides, coal is not the only utility related issue on our plate. A 9% sewer rate increase is being sought for each of the next ten years.  There are valid reasons why the charges should increase, but are you willing to support giving the Bureau of Sanitation carte blanche for that large an increase, year after year?

One neighborhood council did just that after hearing a presentation by the BOS staff. Even though a motion was not requested, the NC passed one. Thank goodness that council’s board members do not negotiate rates with the DWP.

For the record, Jack Humphreville and I listened to the presentation in a meeting we had with key staff members of the bureau.  Kudos to them for a very informative session, but buying into a ten-year plan will require vigorous public debate.

There will also be pressure to increase water rates to support important reclamation efforts.

The size of our utility bills might eventually make the mortgage crisis tame by comparison.  It does not do much good to make your house payment if you cannot afford the utilities.

You cannot take utility components as one-off issues.  They are all important and must be considered as a whole.  Flushing the toilet and drawing water are as important as reducing reliance on coal. Ratepayers must be protected from a perfect storm of across-the-board increases, whatever the reasons. Compromises must be made and priorities set…and re-set as conditions change over time.

It is pretentious of certain groups to assume their goals override all others.

It’s not just utilities; it can be any issue.

Neighborhood councils should avoid jumping on bandwagons and passing feel-good motions. Be wary of pleas from influential activists, official representatives or lobbyists who would rather have us throw caution to the wind and sidestep sensible due diligence.

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The late Howard Cosell coined the term “jockocracy” to describe the erosion of ethics created by loading up the broadcast booth with ex-professional players. Because they are part of a close-knit group of sports alumni, former pros could be more likely to pull their punches when describing or commenting on events on the field.

It’s part of everyday life and we accept it.  It is relatively easy for all but the most fanatic team loyalists to filter through the hype, exaggerations and oversights perpetrated by those who spent their careers competing in front of large audiences; enduring the “thrill of victory or the agony of defeat,” a phrase memorialized by broadcasting legend Jim McKay.

So when Vincent Bonsignore, the assistant sports editor of the Los Angeles Daily News, editorialized in favor of constructing a new stadium in downtown, I had to don my reality filter and sift through the hype he could only have picked up from AEG press releases.

It is not as if Bonsignore has devoted his relatively short media career to covering local politics and the city’s financial disaster. His perspective is that of a sports journalist who will only benefit from the addition of a football franchise, not only in terms of writing additional stories, but free admission to NFL games at the proposed venue in the due course of performing his job.

It has to be an exciting thought and I can understand his enthusiasm.

All of us would be excited, too, if the city were not on the line for even a penny of the project, as Bonsignore, the mayor, AEG and some members of the City Council would like us to believe.

Bonsignore seems to be clueless why the prospect of $350 million in debt issued by the city “freaks the people out.”  What’s the worry when the new tax revenue from the stadium’s operating receipts covers the debt payments, he concludes. AEG will make up the difference if taxes fall short.

Perhaps he should stick to covering sports and not city finances.

You see, the city of Los Angeles has a structural deficit problem that will last for years to come.  It would not be as bad if City Hall came to grips with the realities of pension and healthcare reform, but I don’t see any will on the part of our electeds to deal with it.

Therefore, we need every dollar of new taxes generated by the stadium to flow into the general fund.  Using it to pay off the $350 million in debt is using our own money to make the payments. I’d rather see the additional monies used to support core services, which will also include additional demands created by events held at Farmers Field.

The debt would be used to finance the reconstruction of part of the convention center, connecting it with the stadium.  Bonsignore suggests that would attract new business to the convention center, which does not even rank in the nation’s top fifteen.

A new stadium without a reconstructed convention center connected to it is bound to realize more business based on new sporting events alone, especially considering the mild climate that is the norm during most of the year. What’s the marginal revenue associated with the reconstruction versus what we’d expect from making less costly improvements to the convention center?

These are important details that have not surfaced, or at least not to a truly independent set of eyes.  These are also details one hopes will be tested without the threat of a deadline issued by AEG hanging over the city’s head.

When someone is telling you to commit by a certain date, or else, it is time for the radar to go up.

We are not playing penny ante poker.

And we don’t have a rich uncle bankrolling us at the table. We are the bankroll and the stakes are high.

Bonsignore is out-of-bounds on this issue.  At least the Daily News kept his editorial on the sports page.

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