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Archive for January, 2014

At last week’s board meeting of the Neighborhood Council Valley Village (held January 22nd), I attended as a stakeholder for the first time in ten years. I retired as a board member effective at the end of December.

It was refreshing – no treasurer’s report to present, no procedural issues to cloud my thoughts.

I could focus on the questions I would ask. All it took was filling out a speaker card.

A representative of Assemblyman Adrin Nazarian was present. I took the opportunity to ask him a question concerning what the assemblyman’s position was on the California bullet train.

The reply was as straightforward as one could expect from an elected official’s staff member: according to the representative, Mr. Nazarian believes that local transportation must take precedent over the bullet train. He recognizes there are other priorities which require significant funding.

A very practical point of view from my way of thinking.

While this is not even close to an outright condemnation of the controversial $64 billion project, it is at least a statement of concern.

It is also an indication of how support for the bullet train is anything but assured in the legislature – freshmen Assembly Members normally do not take positions contrary to those of their party leaders.

Governor Brown does not appear to be the least bit phased by the pushback he is receiving, however modest, from Democrats in Sacramento. He filed a petition last Friday with the State Supreme Court to overturn the lower-court rulings that have blocked the sale of $8.6 billion in bonds. The proceeds would only cover a portion of the project’s first leg.

He even requested an expedited review.

There is no way to predict how the State Supreme Court will rule, but Brown’s request essentially is asking the justices to ignore the stipulations governing the bond sale.

If the court supports the governor, the battle will continue on other fronts. A ballot measure to repeal the High Speed Rail Act is in its nascent state. The U.S Congress might hold off on providing the federal share of funding for the project. Of course, other legal challenges may emerge as well.

As part of his budget proposal, Brown is requesting that the state loan $29 million to the project to keep it alive while the controversy and legal battles are played out. More money flushed down the toilet – as if our sewer treatment facilities don’t have enough to deal with.

The problem in California, as in many government units, is the one-off approach to dealing with long-term capital investment. There is no comprehensive strategy, no prioritization. To the extent there is any forethought, what gets advanced is determined by ego and political interests.

The High-Speed rail project is a perfect example – maybe we should call it half-speed rail since the trains will not be able to run close to the pace required to make the trip to/from L.A and S.F in under three hours.

Governor Brown’s ill-advised commitment to this money-sucking scheme is probably driven by ego and commitment to a narrow range of interests who will benefit from the construction phase.

From a practical standpoint, the reduction of traffic congestion and its impact on the environment would be far better served by investing in regional rail or road engineering improvements. Taking cars off the freeways serving the LA metro area trumps getting them off the 5 or 99 in the San Joaquin Valley.

The average person is more concerned about the length of the trip through the Sepulveda Pass or other clogged arteries than the time it takes to get to San Francisco. It would not matter if the bullet train traveled at Warp 3, the need to travel to/from San Francisco is infrequent compared to daily commuting.

What about water resources?

Vast sums must be invested to capture runoff, allow use of grey water and clean aquifers.

Ask yourself these two questions:

How long can you ago without riding a bullet train?
How long can you go without showering?

OK, I am being facetious with that comparison, but the point is that water management is infinitely more critical to life here than the high-speed train. The debt associated with addressing water and regional transportation needs alone could be a crushing load for taxpayers to bear. Why layer another $64 billion – and quite possibly more – for the bullet train?

If I was facetious in my comparison, then Governor Brown redefined the meaning of the term to an extreme.

Old Jerry equated the importance of the high-speed rail project to the construction of the transcontinental railroad in the second half of the Nineteenth Century. He may have been around back then for all we know.

This is an absurd apples and oranges analogy. Probably more like fruits and nuts, with the governor as part of the latter category.

The transcontinental railroad facilitated commerce. Prior to its existence, the only practical way to ship goods from coast to coast was by sea through Cape Horn, a journey that took months and was subject to rough seas.

Within ten years after the golden spike was driven into the last tie in 1869, $50 million of goods were shipped from California to and from the east. That’s $50 million in 1879 dollars. Trade grew exponentially afterwards.

The bullet train is designed to move passengers, a very small segment of the transit market at that. It will add little or nothing to commerce. If anything, there will be a high cost versus the limited social or environmental value.

There are state elections coming up in June. The candidates for the Assembly and State Senate owe us an explanation of where they stand on high-speed rail.

As the candidates make the rounds at forums, neighborhood council meetings or any other gathering, ask them. The media also needs to get answers.

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Death and Pensions

My first accounting job after college was with a retirement trust operated by a trade association for its members.

Defined benefit plans were common for both the private and public sectors in those days.

Each plan underwent a required periodic actuarial review, as happens today. My functions as a staff accountant included providing data to the actuaries and supporting their work by pre-analyzing each individual plan.

I recall a conversation with one of the actuaries concerning the life expectancy assumptions he applied: a 30-year old white male could be expected to live to around 70, about 77 for a white female and somewhat less for all others. This was back in the early seventies.

I asked if he had considered a higher age since the trend clearly pointed to longer and longer life spans.

He agreed that would be an appropriate consideration, but he had to base his assumptions primarily on actual historical data. However, he reminded me that with each subsequent review, the life expectancy would be pushed upward.

Regardless, the life expectancy assumptions he used would tend to trail probable future experience. The actuary did not believe there would be a significant variance in the funding. Employees and employers would be willing to contribute more to secure the future stream of benefits.

What reminded me of this long-ago conversation was an editorial in the Los Angeles Daily News written by Daniel Borenstein, a columnist with the Contra Costa Times who has a Masters in Public Policy from Cal Berkeley.

Mr. Borenstein criticized Calpers for understating life expectancies for its retirees, effectively hiding the true cost of funding the retirement plan.

“Given constant advancements in medical science…the California Public Employees’ Retirement System hasn’t previously factored future mortality improvements into actuarial calculations. As a result, it has not collected enough money to pay pensions when workers retire.”

“Currently, CalPers studies the mortality data for its members every four years and from that projects how long retirees will live and receive benefits. But those numbers don’t account for the expectation that people will live longer in the future; it only considers how long they’ve lived in the past.”

That was deja vu for me. I truly hope our elected officials at the state and local levels read the article. Along with public union leaders, they are living in denial regarding the stability of public pension plans everywhere in California.

But how serious is this understatement? Remember, the actuary I dealt with did not think the variance was significant.

Well, times have changed since the seventies.

Consider this: deaths per 100,000 have dropped by 32% and 45% for middle-aged persons since then (female and male, respectively). All that in a span of 40 years. Using a simple average, that is one point per year. A compound rate would be a little higher. This trend is much higher than the historical data we relied on in the seventies. That means the rate of underfunding has been running higher than my former employer’s actuary ever imagined.

While a percentage point per year may sound harmless, the cumulative effect between actuarial adjustments could easily amount to 4% or 5% underfunding. That’s very serious since we are dealing with billions in accrued benefits.

Who will fund the shortfall?

The responsibility should fall mostly on the participants, but most of our politicians, including the Los Angeles City Council and our State Senators and Assembly Members, do not have the stomach to bargain in earnest with the public unions on whom they depend for campaign contributions.

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A state of siege exists in the City of Los Angeles.

Not in the classic South American style as depicted in the 1972 film by the same name, but a surreptitious version run by the leaders of IBEW Local 18 and DWP management.

All that is needed is for the principals to wear khaki uniforms, shiny suits and shades.

The secrecy surrounding the two nonprofit institutes is the tip of the iceberg. The $40 million in ratepayer money funneled to these organizations pales in comparison to the years of manipulation condoned and driven by Mayor Villaraigosa and the City Council.

Annual surplus transfers and rich union contracts have diverted cash away from infrastructure improvements. The oncoming waves of rate increases are a direct result of this trend, masterminded by the insidious, shadow government.

In a way, the nonprofit scandal was a blessing. It opened up some eyes, particularly those of Mayor Garcetti. It was a far better education than he received at Oxford. It was also a blessing that last year’s mayoral campaign exposed the real power of the IBEW for all to see.

The good news is that we can lift the siege.

It appears we have a triumvirate in the persons of Garcetti, Galperin and Feuer willing to challenge the junta that has been pulling the strings behind the scenes all these years. But they need our help. For one thing, the City Council is not stepping up to confront the hacks responsible for one of the most mismanaged utilities in the nation – investor owned or municipal.

The state of siege has produced two casualties, so far.

Ron Nichols was the first to fall. Mind you, the GM was respected throughout the industry and had good intentions. However, he was as passive as they get when it came to dealing with the slimy politics that underlies the management of the DWP. That’s probably why Villaraigosa hired him. Nichols was not one to make waves. He was not one to openly challenge questionable practices or the transfer of hundreds of millions of dollars of ratepayer money to the general fund.

Wendy Greuel fell soon after.

After she had all but signaled a run for County Supervisor, she and her camp clammed up. Then she quietly announced she would not run. In my view, it was no coincidence she decided to say on the sidelines. The scandal of the nonprofits was snowballing with each day union boss Brian D’Arcy defied requests to produce financial records.

Any reasonable person applying common sense would reach the same conclusion I did. After all, the nonprofits were fully functional during Greuel’s tenure as City Controller. She had also received massive financial support from D’Arcy in her campaigns for controller and mayor. Undoubtedly, this would have invited questions as to her character (or lack thereof) in the supervisorial campaign.

Both Greuel and Nichols should be questioned under oath about their knowledge of the scheme. No stone should be left unturned. I hope Garcetti, Galperin and Feuer do not lose sight of that.

The ratepayers and voters could help bring down the gang by letting their City Council members know that they should refuse all contributions from the IBEW as well as renounce any attempt by the union to use independent expenditures. The message should be: dollars from D’Arcy are dicey.

We should insist that our elected officials put IBEW’s rank and file on notice. Unless they dump D’Arcy and his lieutenants, expect extremely tough negotiations in the next round of labor talks. The City Council must be prepared to stand up to the threat of a strike, even if it comes to requesting a court injunction.

Make no mistake, most IBEW employees enable their leaders to take advantage of us. Many of the employees do not even live in the city. While they are generally competent and possess a work ethic no different from the average worker, they fail to acknowledge that fairness is a two-way street. We are limited in our ability to pay their salaries, especially in view of the major capital improvements our water and power infrastructure will require in the decades to come.

Finally, what do we want to see in the next GM?

The chances of finding a replacement who combines technical skills with political savvy are slim and none. The GM should be first and foremost a political and labor hardballer, but assisted by a principal deputy with deep industry experience.

Lifting the state of siege must start now. Waiting until the next round of city elections will be too late.

We are off to a good start, but momentum is easy to lose.

It is time to get light a fire under your elected officials. Challenge them to change the culture of the DWP and swear off the D’Arcy dollars.

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Ron Nichols has resigned.

In my previous articles concerning the secretive DWP nonprofit institutes (here and here), I expressed doubts about the judgment of the utility’s GM Ron Nichols. Specifically, he failed to raise a red flag about the clandestine activities of the two entities.

When you are a board member of an organization and suspect not all is what it seems, you have an obligation to report your concerns to an independent member of management.

Instead, Nichols sat on the problem for three years.

I can cut him some slack for not going to former controller Wendy Greuel. She was nothing but a tool of union boss D’Arcy. He funneled millions to her campaigns for City Controller and Mayor.

But there was no reason why he did not approach Garcetti or Galperin. That leads me to believe he may have been covering up; for what reason is anyone’s guess.

Controller Galperin should not allow the resignation to let Nichols wiggle off the hook. He needs to answer some tough questions under oath.

Prior to Christmas, there was chatter about Greuel making a run for County Supervisor. Greuel herself expressed a desire to do so. One would have expected her to announce soon after the holidays, but there has been not as much as a peep from her or her supporters. Does her involvement with D’Arcy lead to the nonprofits?

Regardless, if Greuel does decide to run, her D’Arcy connection will be an issue.

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Once again, the MTA will put a measure on the ballot to raise the sales tax or extend the tax approved by Measure R. It could bring the overall county sales tax to 9.5%.

The truth is, we need major transportation improvements, especially commuter rail and alternatives to the 405 through Sepulveda Pass.

I’m willing to pay a little more for a convenient and reliable mode of public transportation. I’ve used various combinations of the Red, Blue and Green lines whenever possible, not to mention Amtrak and Metrolink. I even dodged a bullet – literally – on the Blue line. It did not deter me from riding the rails. Nothing like an adrenaline rush while commuting.

What I am unwilling to do is pay for both local improvements and the state’s bullet train. The former will serve more people and remove far more cars from the road than the latter . I’ve written about this before.

An attempt to extend Measure R’s tax narrowly failed to garner the two-thirds vote required for approval in 2012. I am sure the MTA and Zev Yaroslavsky feel confident they can pick up just enough votes for it to pass the next time.

However, times have changed. The residents are feeling besieged by an onslaught of new tax proposals from all sides – the street repair bond being pushed by the City Council’s brain trust of Mitch Englander and Joe Buscaino, there is always a threat of the LAUSD launching a parcel tax initiative (they pulled one in 2012 because it would have competed with Governor Brown’s tax increase), not to mention the untold billions that will be required to extend the Bullet Train beyond the San Joaquin Valley, assuming that folly is not stopped in its tracks.

And on that last point, the MTA and Zev could do us a favor.

They can travel to Sacramento and lobby Governor Brown and the legislature to kill the project.

We need to receive the best value for our dollars. The private sector uses capital budgeting to select the most promising projects.

By contrast, state and local governments take a shotgun approach and attempt to cram as many big-ticket items down the taxpayers’ throats. They sacrifice utility to achieve political objectives.

Brown’s insistence on using other sources of tax revenue to lay a few miles of useless track is running into opposition from normally sympathetic environmental allies…. and for good reason. Environmentalists want value for the money, too. Brown’s proposal to tap cap-and-trade taxes to fund the Bullet Train is viewed as a poor alternative to other projects.

Maybe Brown would listen to the MTA and Zev, assuming they were even willing to try to convince him.

If they are serious about a local transportation measure passing, they should let the voters know they will fight the state’s oncoming train wreck before it sucks our wallets dry and leaves us stuck on the 405.

It would be a nice legacy for Supervisor Zev.

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