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Archive for April, 2014

There’s going to be some serious dancing down in Plano, Texas over the next two years as Toyota relocates 3,000 jobs from Torrance, California and another 1,000 from other locations.

Two-stepping away from California will result in serious tax savings for the automotive giant employees who choose to make the move, ranging from a few thousand to over $10,000 per year. Add that up over a lifetime and you have a basis for sound retirement income.

No personal income tax for Texans. Property tax rates are higher in Texas than in California, but housing costs are less in the Lone Star state, so actual property taxes could be lower for homeowners there.

The sales tax rate in Plano is 8.25% vs 9.0% in Los Angeles and Torrance, but there are measures on the horizon that could increase the rate for the latter two cities up to 10%.

Toyota downplayed the cost incentives for making the move, alluding to the potential synergy and efficiency of Plano’s proximity to the company’s manufacturing sites. But the numbers speak for themselves – there are no corporate taxes in Texas and Governor Rick Perry offered $40 million to Toyota to make the move. The payout will be more than recouped by sales tax generated by 3,000 employees whose aggregate earnings must be close to $200 million, and by the multiplier effect of their spending.

California was never on the radar scope for Toyota’s change of base. That speaks volumes. It could have been a different story if California had been an attractive location for Toyota’s truck manufacturing plant, constructed in San Antonio in 2004. California wasn’t even on the list of states considered.

Local politicians here in Los Angeles are more interested in a failing strategy to keep film productions here knowing full well our labor costs are much higher. They need to make the region and the state more attractive to manufacturing facilities that offer good middle-class jobs. Manufacturing attracts high-paying white collar jobs, too – accounting, information technology and other back office career opportunities. Instead, our City Council always opens the check book to hotel developers and the low-paying hospitality industry jobs they offer.

How many Toyota employees will make the move to Plano remains to be seen, but those who decide to stay will have an uphill climb in finding comparable jobs in Southern California. I suppose they can work the registration desk at a 5-star hotel in downtown.

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Mayor Garcetti’s budget included a line item for the hiring of 50 part-time parking enforcement officers. He estimated it would add $5 million to revenue. The mayor tried to paint the strategy as a way to promote business by discouraging violators, thus making parking spaces along commercial corridors more available.

If the mayor really believes the public will buy that explanation, then he is an embarrassment to Oxford University. Let’s check his transcript to see what he studied as a Rhodes Scholar.

Perhaps he should have paid attention to the advice offered by Bell Scholar Robert Rizzo: “Pigs get Fat … Hogs get slaughtered!!!! So long as we’re not Hogs… All is well.”

Granted, $5 million pales in comparison to the theft orchestrated by Rizzo and his crew, but the principle is the same: there is a line where even if you cross it by an inch, an alarm is triggered. Garcetti tripped it by attempting to shake the spare change from the public’s pocket. He got greedy, and now the spotlight is focused on his credibility. His budget may just transition from pig to hog status. If the mayor is playing games on parking, it is likely there are other aspects of the budget worth challenging.

What’s more, Garcetti’s ploy just might end up reducing revenue in the long run.

As a result of the negative publicity generated by the prospects of ramped-up parking enforcement, Garcetti has had to include the Los Angeles Parking Freedom Initiative Group to participate in a panel to discuss reforms to the ever-growing cash cow (hog?) fed by ticket revenue.

Steven Vincent and Jay Beeber, the group’s founders, have already succeeded in bringing down the red light cameras. They have street cred.

In an interview on KFI, Jay Beeber made it clear that if the discussions do not yield satisfactory results, a ballot initiative would be the next step. If the group is compelled to go the initiative route, they will likely make it worth the while by demanding more stringent reforms.

Either way, ticket revenue is likely to decrease, especially if meter violation fines are capped at $25 (down from $63) and a reasonable appeal process is implemented.

It is ironic. Garcetti’s attempt to balance the budget on an issue that affects everyday life for most of us may lead to a larger budget hole, not only now, but in the future.

That’s what happens when you avoid key structural changes in favor of penalizing the public.

Mr. Garcetti, we are not Rhodes Scholars, but we can read a meter….and your’s just registered “violation.”

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According to a story in today’s Los Angeles Daily News, IBEW, Local 18 is planning an appeal of a Superior Court decision that granted Controller Ron Galperin the authority to conduct an audit of the secretive Joint Institute trusts.

Union boss Brian D’Arccy’s attorney claims the audit cannot be conducted during the appeal process.

This move comes as no surprise to anyone who follows Los Angeles politics and city governance.

My concern is that critical records could be “lost” in the additional time the union has to prepare for an audit, that is if the appeal is unsuccessful. At a minimum, D’Arcy’s operatives could erect barriers that would make accessing records difficult or prepare a storyline to deal with potential findings.

An aggressive audit could still uncover questionable practices in any event, but collaboration among those managing the trusts could color the results and diminish the final recommendations.

No timeline was reported for the appeal.

It is now even more important for Galperin to subpoena the DWP managers that served on the boards of the trusts, including Ron Nichols. They need to be questioned under oath. Either they have an idea of how some of the $40,000,000 was spent, or they were negligent in their fiduciary duties to the public and management responsibilities with the DWP.

Galperin must take steps to recover $12,000,000 sitting in the bank accounts of the trusts, assuming the funds are still there.

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Mayor Garcetti is on to something. Too bad he is off the mark with his objective.

He wants to hire 50 part-time parking enforcement officers in hopes of squeezing $5 million in additional ticket revenue from citizens. If that’s what he means by “back to basics” I can only imagine how sidewalk repairs will be handled.

But the concept of using part-time employees to perform a repetitive job is actually a pretty good one.

So rather than adding the 50, why doesn’t the city eliminate 50 full-time parking officers and replace them with a full-time equivalent of part-timers? Say 100 half-time employees.

The annual average salary for transportation department traffic and meter techs is around $60,000. Load at least another $20,000 in benefits and the total compensation is up to $80,000. Since part-time employees do not earn benefits, replacing the 50 would save the benefit load, or $1 million per year. Some of that would be offset by additional training costs, but there would still be very measurable savings, especially when one considers the favorable impact on long-term pension costs.

While this alternative would not benefit the bottom line by $5 million, the message is better – that the mayor is serious about cost control.

The use of part-timers for some positions would allow better staffing flexibility, too.

The mayor should be considering the limited use of part-time employees in other areas as well. Seasonal spikes in workloads could be handled more efficiently without overreliance on overtime.

Of course, the unions will raise bloody hell, but Garcetti should remember who elected him.

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Kudos to the mayor for a slick presentation, but that’s as far as it goes. Form wins over substance – yet again.

With labor negotiations underway, I would not be so quick to use $47.9 million of the city’s reserve fund to plug the $242 million budget deficit, but that is exactly what Eric Garcetti did. How sure can he be that no raises will be offered in the upcoming fiscal year? I hope he is right, but budgets should not be based on hope. If that assumption does not pan out, then tap the reserve fund, but not before.

Equally shaky is the assumption that investment earnings on the pension portfolios will be higher than anticipated.

Really?

Unless the lion’s share of the investments are in relatively short-term, fixed rate bonds, predicting returns requires a crystal ball. So far this year, markets have been very turbulent and the world economy could be in for rough sledding due to the crisis in Ukraine. Russia’s economy is deeply integrated with the rest of the world’s. Sanctions against Putin’s reincarnation of the former Soviet Union will have ripple effects, unlike the ones that have been squeezing Iran.

One-time revenue of $52.6 million does nothing to fix the structural deficit. Nothing more needs to be said on that point.

The biggest mystery is what constitutes the basis for the $64.8 million from efficiencies and reductions. We already know that some of it represents the elimination of vacant positions. Those are not really cuts. We would be better served if the mayor also presented a comparison of the proposed budget against an estimate of this year’s actual results. Garcetti, as all the mayors before him, is playing a game. It is easy to sandbag vacancies and use them in the next budget process to give a false impression of progress on the cost reduction front.

Are the other reductions programmatic or a series of one-off, what-if guesses? Do tell, mayor.

I can accept the revenue growth estimate as reasonable, especially with respect to property taxes.

I realize politicians will blow smoke to cover up deficiencies, but shouldn’t they at least use e-cigarettes? They are less hazardous.

I forgot. The City Council banned them.

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Jill Banks Barad is the Energizer Bunny of the NC system.

Few can bring together 200 NC board members, stakeholders and some of the highest profile politicians for an evening of food, socializing and debate as she can.

This being the Valley Alliance, most of the guest pols were running for seats with a footprint in the Valley. The candidates for Zev Yaroslavsky’s seat in the Third District – Bobby Shriver, Sheila Kuehl, Pamela Conley Ulich and John Duran – were the headliners for the evening.

Using a forum Q&A format, the candidates had a chance to express their stands on issues ranging from homelessness to county services.

They kept things civil. There were a few friendly jabs, but nothing as intense as what transpired in the mayoral campaign. It was, after all, primarily an evening devoted to mingling and giving the crowd a chance to get to know the candidates at a personal level. I have nothing but praise for how they conducted themselves – and everyone knows how critical I can be, so that is saying something. I will try to interview as many of them as possible in the weeks to come.

I had a chance to sit with a former preteen idol of mine, Sheila Kuehl of Dobie Gillis fame. The show was cutting-edge comedy for its day and would hold up well by contemporary standards, a credit to the writers, producers and the cast.

Candidates for Zev's seat square off at VANC's 11th anniversary event.

Candidates for Zev’s seat square off at VANC’s 11th anniversary event.

The highlight of the evening was honoring City Controller Ron Galperin with VANC’s “Got It” award, in recognition for the unprecedented contributions he has made to transparency with the control panel database and his relentless pursuit of answers in the DWP nonprofit scandal.

A special thanks to all the Neighborhood Councils in the Valley, almost all of them were represented, for contributing time, funds, supplies and, most importantly, camaraderie.

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I was not surprised by Councilmember Paul Krekorian’s reaction to the 20-20 Commission’s recommendation to lower the earnings rate assumption for the city’s employee pension programs.

Lowering the outlook from 7.75% to 4%, a rate in line with what Warren Buffet’s Berkshire Hathaway uses to calculate its pension liability, would disclose a far more realistic estimate of what the citizens of our city are on the hook for in the long run. Simply stated, the lower the rate, the more assets you need to cover the guaranteed retirement benefits of city employees.

He called the recommendation “absurd”, according to the Daily News, stating that the returns over 25 years have been much better than that.

Krekorian is not what one would call financially astute. As the Chair of the Budget and Finance Committee, he has labeled the city’s budget as balanced.

That’s right, folks. The budget is so balanced that the city is contemplating a sales tax increase to cover street and sidewalk deferred maintenance (a.k.a. neglect) to the tune of $4.5 billion. The budget also defers the payment of police overtime to future periods. Hundreds of millions of dollars are taken from our DWP ratepayer money to plug the overall budget gap – funds that should be invested in utility improvements.

When you defer current obligations year after year, you are robbing from the future. That’s not balancing the budget.

But what does Krekorian know….or care? It won’t be his problem down the line when he collects his city and state pensions.

Back to the rate of return.

As I wrote back in 2011:

The holy grail of public employee unions in general – not just the city unions – is that past performance is indicative of future returns. That’s just the opposite of the financial advice offered by investment advisers, whether they are employed by large Wall Street firms or independent professionals working from home.

Krekorian chooses to hide in the past.

Markets have become more volatile and will likely stay that way for a long time to come. Political unrest and growing international competition almost guarantee it. High risk demands conservative long-term earnings estimates.

Selecting a rate assumption involves a high degree of subjectivity. I prefer to focus on the relevant range of time.

If you look too short or too far back you risk putting too much weight on current events, such as a bull or bear market, or long-gone structural elements, such as regulatory controls no longer in effect (i.e, Glass-Steagall).

A rolling period covering the 5 to 15 year average return is probably more indicative of reality as it relates to contemporary times. As an example, for LACERS, that would support something closer to a 6.5% return.

The 4% recommendation is perhaps too conservative, but it would be wise to apply it to the assets needed to fund anticipated benefit payouts for the next 2-3 years. For that matter, the unfunded liabilities should be disclosed for several outcomes. Does Krekorian or any of his colleagues understand the meaning of disclosure?

Whether the assumption is 6.5% or 4%, or anything in between, the unfunded liability of the pension plans will soar. But better to face reality than otherwise. How else can you negotiate employee pension contribution requirements without considering a range of possibilities?

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