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Archive for January, 2012

Austin Beutner, a mayoral candidate, investment banker and former volunteer deputy to Mayor Villaraigosa appeared before a packed room at the Valley Alliance of Neighborhood Councils on Thursday evening.

The crowd of fifty community leaders and activists may have come close to exceeding the maximum occupancy of the room, but were in good hands with three LAFD firefighters in attendance.

Unfortunately, the LA Budget Advocacy Group also scheduled a meeting for that evening, which kept a few key regulars from attending.  The scheduling snafu was not lost on the VANC members. They voted to send the Budget Advocates chair a letter reminding him that the VANC meeting regularly occurs on the second Thursday evening of every month.

You can always count on frank, intelligent questions from VANC attendees.  Mayor Villaraigosa, City Attorney Trutanich and Controller Greuel should face as tough a test from the press, but the media seems content to simply take notes.

Candidate Beutner did not dodge any questions. He was businesslike and his answers appeared genuine; he displayed confidence. His performance was certainly above the standard associated with the usual suspects from City Hall.

He started off by mentioning the almost two hours it had taken him to drive from his home in Pacific Palisades to the meeting.  He offered the experience as an example of a city that does not work.

Beutner offered other anecdotes indicative of a floundering bureaucracy. DWP is still using ancient COBOL software for its billing system and has to bring in a retiree from Palm Springs to resolve programming issues (the utility will convert to Oracle next year at his insistence). No one can produce a list of the city’s top vendors – the IT chief could not even determine how much was paid to Microsoft (I bet Microsoft knows how much was received from the city for any given period). There is no standard chart of accounts, which makes it extremely difficult to track expenses – even the Controller’s office seemed to struggle with the concept of standard accounts.

I was not surprised by any of these disclosures.  Among other issues I’ve noted in this blog,  it takes the city almost a year to publish audited financial statements – one of the most essential and basic tasks of any organization –  a clear indication of inept management.

Beutner classified the city’s accounting as fraud. The budget is not balanced when overtime is deferred, when pension funding is based on an unrealistic earnings assumption of 8% and when infrastructure maintenance and replacement is ignored.

Regarding the City Council transferring the responsibility for $1.2 billion in sidewalk repairs to property owners he said, “The city is supposed to maintain infrastructure. That’s what we pay taxes for.”

He would like to pull the plug on the state’s High Speed Rail Project and instead invest in regional and local improvements to commuter rail and infrastructure.

When asked what he would do for education if elected, Beutner would use his office as a bully pulpit to point out mismanagement and lack of priorities at LAUSD.  As an example, he recently walked around a campus in Westchester and pointed out four flagpoles costing $100,000 each. Why did the school system spend so much  for them when other needs go unfulfilled?

On the possibility of municipal bankruptcy in the city’s future, he noted that the average resident does not know how dire the city’s financial state is.  “We cannot keep paying high labor costs,”  he emphasized.

VANC will invite each of the candidates in the months to come.

My advice to them: come prepared and be frank.

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The most popular arrangement of a traditional song in the repertoire of many choral and a capella groups , Oh Shenandoah, was created by James Erb.

Mr. Erb conducted the Richmond Symphony and taught music at the University of Richmond where he also founded the University Choir.

The arrangement incorporates multiple, alternating harmonies.

Here are two performances.  One is by the University of Richmond Octaves, an all male a capella group who adopted the work as its signature song, and the other performed in 1971 by the University Choir under Mr. Erb’s direction.

Enjoy!

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Once again, California is facing a budget crisis. 

No surprise. What did you expect when the state government cannot accept the existence of volatility?

Governor Brown is still living in the past.  He, as most of us, has witnessed national recoveries from oil price shocks, the tech bubble and 9/11 – including the wars spawned by that act of terrorism.

Up until the collapse of the financial markets in 2007, the American economy was driven as much by exuberance than substance, and for good reason – productivity gains in the 1990s seemed to assure stability and provided a false sense of security that the United States could weather any financial crisis. 

According to Alan Greenspan in a speech he made at a Federal Reserve Bank symposium in August 2002, “…accumulating signs of greater economic stability over the decade of the 1990s fostered an increased willingness on the part of business managers and investors to take risks with both positive and negative consequences. Stock prices rose in response to the greater propensity for risk-taking and to improved prospects for earnings growth that reflected emerging evidence of an increased pace of innovation.”

Greenspan also recognized the downside: “productivity acceleration does not ensure that equity prices are not overextended. …The danger is that in these circumstances, an unwarranted, perhaps euphoric, extension of recent developments can drive equity prices to levels that are unsupportable even if risks in the future become relatively small. Such straying above fundamentals could create problems for our economy when the inevitable adjustment occurs.”

Too bad Greenspan did not heed his own advice and address the housing bubble that was inflating under his nose.

And too bad Governor Brown believes a robust recovery is on the horizon.  I can surmise as much from his belief that  tax increases will eliminate the state budget deficit in five years.

At least Greenspan recognized the potential of volatility risk even if he did not act on it.  Brown’s assumptions for a turnaround amount to nothing more than exuberance and ignores the risks of volatility still very much with us.

No one can say with any degree of confidence that the economy will recover at a pace capable of sustained, steady growth of the type that will fill the state’s treasury. The housing market alone will be a drag for years to come as we work through foreclosures and equity is rebuilt for those homeowners still current on their loans but underwater. The future for the commercial market is not bright either.

Brown is banking on the 1% who generate 40% of the overall personal income tax. According to an article in the Los Angeles Times, H.D Palmer of the state’s Department of Finance recognizes the volatile leverage of that ratio.  He was quoted as saying, “So small swings can swing your assumptions.”

The governor is in an unenviable position, but why does he want to make it worse by not facing up to the risks of his tax plan? A ballot measure in November would increase rates on those earning more than $250,000 from 1 to 2 points. 

Brown would be better off taking whatever cash the state has left and betting it on red or black at a roulette table.

High earners depend much more on capital gains from real estate, stocks and business investments.  Even in the unlikely event that all of these markets had better than average turnarounds, there will be carryforward losses offsetting some of the gains.

You don’t want to bet the house on high-end taxpayers, assuming you have a house with sufficient equity, but that is what Brown wants to do.

How many of the high-end taxpayers would leave the state if their rates are increased is often debated.  However, given the leverage the 1% have on state revenue, it would not take too many departures to offset the estimated increase in taxes from higher rates.

Short of broadening the tax base by introducing a system resembling a flat tax structure, there is little choice but to cut.

It will be impossible not to slash education, as Brown is threatening to do, in the absence of concessions from powerful public employee unions.  There are no negotiations of any substance along those lines and Brown is not seeking any.

The LAUSD is considering a parcel tax to partially cover its deficit.  Sticking it to the homeowners has been tried before and failed.

The outlook is grim and there will be pain.

Now, more than ever, we must demand that state and local governments are tasked to perform with less, just as the private sector has these last several years.

Ultimately, there will be a recovery, but things may never be the same. The past is over; let’s prepare for a more competitive future.

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Mayoral candidate Kevin James added his opinion on Villariagosa’s deceitful financial maneuver. So far, Austin Beutner is the only other candidate expressing concerns.  No word from any of the others.

http://citywatchla.com/lead-stories/2695-city-hall-continues-to-stick-it-to-la-with-bad-budgeting-and-deceitful-one-off-gimmicks

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Aaron Corp, Richmond’s starting quarterback for the last two seasons (other than the games he missed due to an injury) can be proud of his achievements. 

I had the pleasure of watching him play three times.

He endured despite an offense without a ground game, a brand new offensive line, injured receivers and the sudden dismissal of the head coach. Corp was the offense along with splendid receiver Trey Gray, who just might end up in the NFL. Corp, himself, attracted some interest. They would join running backs Tim Hightower, Josh Vaughn and kick returner/defensive back Justin Rogers if selected. 

Next season will be a continuation of rebuilding.  New head coach Danny Rocco, who replaced interim coach Wayne Lineburg, announced the transfer of quarterback Michael Strauss from the University of Virginia.

Strauss was a redshirt for the Cavaliers under former Richmond player and coach Mike London.

At the rate Richmond and Virginia trade coaches and players, shuttle van service should be introduced on I-64 between the two schools.

Strauss, from  Key Biscayne, FL, had an impressive career in high school. He was ranked among the nation’s top 50 quarterback recruits.

Since he matriculated at Richmond this semester, he will be eligible to play in spring practice.  There is no waiting period for players who transfer from FBS to FCS schools, so Strauss could conceivably start in the fall.

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Mitt Romney has been criticized by his competitors for expressing a willingness to fire underperforming persons or organizations.

I see it another way: bring Mitt to Los Angeles and let him fire away.

What does it take to fire an appointee, manager or any other employee in this town?

Apparently it’s OK to tolerate sexual harassment, bribery, incompetence, and just questionable practices in general.  

Sordid events involving bribery and misuse of funds; failure to disclose important financial information affecting the city’s future cash flows, allowing the accumulation of $270  million in uncollected fees, and not performing even the most basic reviews the result of which cost the city hundreds of thousands of dollars due to fraud are apparently not grounds for dismissing or demoting general managers.

As bad as all of that is, there is one thing worse: the public’s tolerance of our elected officials’ lack of response to these matters.

Quite frankly, 90% of the voting age population need to be fired from the city for negligence.  Many of the illegal immigrants would make more responsible citizens.

What does it take to awaken people?

I have met intelligent individuals, including some in my own profession, who are clueless about local government and have no desire to at least become unclueless (new word for 2012).

The rest of us may as well be pushing a boulder uphill.

How long before we tire of it?

And beware – when boulders roll backwards, they hurt whoever is in the way.

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By now, most of you have read David Zahniser’s report concerning Mayor Villaraigosa’s attempt to balance the budget by deferring payment of $100 million in personnel costs until after he leaves office.  The mayor even had the audacity to state he would leave the city “in the black” for his successor.

Wendy Greuel is OK with the mayor’s plan.

Wait.  How can I say such a thing?

She has issued no statement one way or the other.  

Precisely my point.

There are many things Greuel can ignore.  If Villaraigosa is using too many sharpie highlighters, who cares?

But to ignore foisting $100 million in current expenses on future periods and claim it is all about being fiscally prudent is not something an elected official can simply ignore, especially the City Controller.

Complete disclosure of all material events and obligations is one of the fundamental responsibilities of a controller in private industry or government. Failure to disclose critical information could lead to criminal charges under certain circumstances. $100 million is material in all aspects to the city, especially if it could very well come due much sooner than later (see addendum below for the extent of the disclosure in the city’s financial statements).

It appears that Greuel is walking a fine line between willful failure to report the state of the city’s financial condition versus gross negligence.  I might be willing to give her the benefit of the doubt and assume the latter since she has never demonstrated any acumen when it comes to Accounting and Finance 101.

David Zahniser’s article detailed a string of irresponsible decisions by the lame duck mayor Antonio Villaraigosa – decisions with adverse ramifications for the city and whoever succeeds him.

The most glaring deficiency is failure to disclose not only a growing liability of deferred LAPD overtime payments, but the possibility that they may have to be paid as early as July 2014 when the overtime banking cap could drop to 150 hours per officer from 800 .

That’s a possible $78 million hit against the general fund.

Zahniser goes on: “Putting off overtime costs helped free up money for Villaraigosa’s signature public safety initiative: expanding the size of the department by up to 1,000 officers.”

Wasn’t that what the trash fee hikes were supposed to accomplish?

A real controller would take the mayor to task and publicly insist on a plan to deal with the obligation.

That won’t happen in Los Angeles with Greuel in control of the check book.  The last thing she wants is an issue that could jeopardize her relationship with Villaraigosa during the upcoming campaign.  

By contrast, Laura Chick would have done an OVO – Occupy Villaraigosa’s Office.  She would have camped out there until the fibers in the carpet resembled the lawn around City Hall after the OLA participants were evicted.

If Greuel is elected as our next mayor, and God help us if she is, how will she explain the budget gap that results from Villaraigosa’s punt?

She would probably feign surprise as she does with every other financial scandal that hits the city.

Let’s not stop with Greuel.  Council Members Eric Garcetti and Jan Perry, both candidates for mayor, have been quiet as well.  So-called budget hawk Bernard Parks, who oversees the development of the annual budget, has also been silent.

Please remember – you have other choices for mayor. So far, only candidates Austin Beutner and Kevin James are untainted by this latest scandal.

It won’t be long before candidate forums are upon us.  Ask tough questions and demand complete answers.  Insist on forum moderators who will ask follow-up questions if a candidate does a tap dance around the issues.  If we play softball, we will end up with Greuel.

Addendum ( Source – from the footnotes to the city’s financial statements, latest year published as of June 30, 2010. There is no discussion or projection of the financial impact, only this summary disclosure):

Accumulated Compensated Time-Off: The MOU with the union representing police officers at the rank of Lieutenant and below, and certain civilian employees, provides that officers will accrue compensated time-off for accumulated overtime to certain limits. Whenever an employee resigns, retires or is discharged from the Police Department, the employee shall be paid in cash for all compensated time-off due. In case of death, payment will be made to the estate.

Accrued compensated time-off is reported in the government-wide financial statements. For the Governmental Funds, expenditures are recognized to the extent that they are normally expected to be liquidated with expendable available resources and are due and payable at year-end. Also, for governmental activities, accrued compensated time-off is generally liquidated by the General Fund.

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