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Archive for August, 2014

A sensible organization or individual would engage in an arm’s length negotiation where assets or services are exchanged.

Here’s a succinct definition of an arm’s length transaction according to Investopedia: A transaction in which the buyers and sellers of a product act independently and have no relationship to each other. The concept of an arm’s length transaction is to ensure that both parties in the deal are acting in their own self-interest and are not subject to any pressure or duress from the other party.

Only fools would knowingly appoint a person whose interests conflicted with their’s to represent them in an important transaction.

Not so, as far as the City Council’s standard operating procedure.

Just recently, the brain trust a majority of the voters elected to the council made a proposal to settle the dispute between the city and the IBEW over the right to audit the secretive non-profit trusts – the Joint Safety and Training Institutes. Part of the proposal would allow the IBEW to veto the appointments of the mayor to serve on the boards of the trusts.

That makes as much sense as allowing Vladimir Putin to select a committee to deal with the crisis in Ukraine.

On the heels of this proposal, Councilman Paul Koretz, with the cooperation of his colleague, Paul Krekorian, is giving away a marketable city asset to an organization with political ties to the mayor. That’s the city’s idea of horse trading.

Now the latest war on checks and balances is being waged by the city’s other public unions. They want to block Mayor Garcetti’s appointments to the Labor Relations Board and, instead, have him select from a pool of candidates screened by the unions.

Compensation and benefits amount to over 80% of the city’s general fund. If we expect the mayor to effectively manage operations while handcuffing his ability to negotiate personnel costs, then we are delusional.

The prognosis is for a severe case of delusion given the officials we elect.

Until we rid ourselves of them, labor negotiations will be conducted at finger’s-length.

It will be the middle finger, and it will be aimed at us.

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The Los Angeles City Council’s plan to resolve its dispute over auditing the controversial non-profit trusts gives away the most important element of accountability – independence.

The foundation of good government and good management is a system of checks and balances.

Among other things, the Council’s proposed settlement, which stills needs to be reviewed by IBEW Local 18 (God knows what modifications they will suggest), will force Mayor Garcetti to withdraw his appointments to the boards of the Joint Institutes of Training and Safety and allow the union to have a say in the selection of external auditors to perform future audits.

The mayor’s board appointees are Michael Fleming, who serves on the DWP Commission, and Richard Llewellyn, the mayor’s chief legal adviser. The IBEW has refused to seat them; as a result, the trust boards have not held a meeting since Garcetti announced the appointments last February.

Union boss Brian D’Arcy claims the two would have a conflict of interest owing to their relationship with the mayor – as if the union board appointees are independent?

Los Angeles Superior Court Judge Michael Linfield backed Garcetti in a court ruling in July. He denied the union’s request for arbitration and issued a preliminary injunction allowing Fleming and Llewellyn to be seated. Basically, the mayor and his allies’ interests were compatible with the responsibilities of the non-profit boards.

Now the City Council appears to be willing to give D’Arcy veto power over board appointments. That does not foster independence and transparency.

But wait! D’Arcy will allow the new General Manager of the DWP and another executive of the utility to serve instead.

Well, that’s been a winning combination over the last ten years.

A succession of DWP managers have sat on the boards since the trusts were created.

How much disclosure was provided in that time span?

Virtually zero.

DWP managers are too involved in ongoing affairs with the IBEW to be truly independent. They have to look at D’Arcy’s mug regularly and endure his power-hungry ambitions. They will simply be worn down and cowed into acquiescing with the Boss.

Allowing the union to have a say in the selection of an external auditor also runs counter to independence and transparency. It will mean D’Arcy will influence the scope of the examinations. Unlike publicly traded corporations who must undergo rigorous audits, more so in the post-Enron era, in the case of the DWP non profits the objectives of an external examination may be more of a review and less of an audit. It is a matter of negotiation. D’Arcy will want it to cover the bare minimum…..and he just might be able to get his way, as he does in many negotiations.

If the City Council caves and pushes this dubious plan forward, a plan that will undoubtedly be watered down in its final version, they will set up the proverbial fox guarding the hen-house scenario.

For D’Arcy, it will taste like chicken.

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“What I said and stand behind is, war is hell and unfortunately civilians are victims of political conflicts.”

Those words were from the mouth of none other than commedienne Joan Rivers as she made her way through LAX the other day. She was referring to the tragedy unfolding in the Gaza Strip.

That’s right, the same Joan whose is best known for her commentary about red carpet events in Hollywood. I would scarcely pay attention to her on any subject, but she caught my attention this time.

Her words were harsh, but ring truth if you filter out the emotional elements of the subject.

“War is hell” was first spoken by General William T. Sherman, who was best known for his controversial, but effective, tactics in the American Civil War. He also said he would “make Georgia howl” before he embarked on his destructive march to the sea. He understood the concept of total war and its importance in vanquishing a dangerous enemy.

He spoke often about war. “War is hell” happens to be the most remembered of his statements. However, another is more meaningful: “War is cruelty. You can’t refine it.”

I believe we here in the United States and the industrialized world in general developed unrealistic expectations regarding the effects of war. You can partly blame that on the First Gulf War fought in 1991.

We became accustomed to smart bombs and laser-guided ordnance. The large Iraqi army was dispatched quickly, with very light casualties incurred by the Allies.

Events moved rapidly for a conflict of that scale – ground operations lasted only 100 days. The world was so mesmerized by the effectiveness of the General Schwarzkoph’s strategy that there was little time to dwell on the pain suffered by the civilian population of the region.

No official tally of civilian losses was ever released. To my knowledge, there was no serious tabulation attempted. One estimate claims about 13,000 civilian deaths as a direct result of Allied attacks, mostly attributed to the bombing of select facilities in Baghdad and other cities.

By contrast, about 40,000 Iraqi soldiers lost their lives.

The ratio of military to civilian casualties reflected the nature of the combat. Most of it was over open terrain and away from population centers.

The Gaza Strip, on the other hand, provides a completely different backdrop. It is a conflict where Sherman’s definition particularly holds true – it is cruel and cannot be refined. It has also been going on for decades at varying levels of violence

The high ratio of civilian deaths to combatants in Gaza is a direct result of population density and the determination of Hamas to fight in close proximity to nonmilitary facilities. It is a situation that, to some extent, cannot be avoided. It is similar to what has occurred in countless wars. For example, some 50,000 French civilians perished in the combat activities leading up to and through the Allied invasion of Normandy in World War 2. Undoubtedly, a significant share of the casualties was attributable to Allied bombing and shelling.

Few faulted the Allies from doing what had to be done to eliminate the cancer of Nazism, as painful as it was to innocent civilians.

Hamas is a cancer, too….a cancer that wants to spread beyond its present infestation.

Hamas cannot be ignored, especially by Israel who has endured many thousands of rocket attacks. These attacks would have been more deadly had it not been for Israel’s sophisticated Iron Dome missile defense system and the technologically primitive design of the incoming rockets.

It is a costly way to fight a determined enemy hellbent on delivering unending salvos of rockets that are intended to terrorize and kill Jews. President Obama just recently authorized $225 million to bolster and replenish the Iron Dome.

Israel manages the system to minimize the costs. According to an analysis published by the Christian Science Monitor, “Iron Dome doesn’t target all rockets fired towards Israel. Since each interceptor costs around $60,000 and many of the crude rockets fired by Hamas and others from Gaza cost as little as $1,000, that would be a quick way to go bankrupt. Instead, radar picks up the trajectory of rockets, and only fires at ones headed for population centers.”

Still, the economics of dealing with Hamas terrorists is high. Think of the financial aid that could go to develop the Gaza Strip were it not for the relentless attacks on Israel perpetuated by a terrorist regime, one that was popularly elected by the Palestinians themselves.

If Israel were deliberately targeting civilians, the death count among the general population would be many times higher. Every shell fired or bomb dropped would kill many dozens of civilians.

If Israel does nothing but target incoming rockets, it will resign itself to endure decades of terrorism. A lifting of the embargo against Gaza will guarantee an unimpeded inflow of rockets and even deadlier arms from countries and factions whose goal is to wipe Israel off the map.

I am afraid the only solution to this ongoing crisis is to make the Palestinians howl, as Sherman would have put it; howl loudly enough to throw Hamas out and install a sensible government willing to work with Israel and the West to develop the nation’s resources.

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I visited the local hardware store on Saturday to purchase a roll of duct tape.

“Sorry,” the clerk said.

“That stuff just flew off the shelf on Friday.”

Undeterred, I shlepped to Home Depot.

The shelve space for the product was empty.

I managed to flag down an employee (they were about as hard to find as missing duct tape).

He, too, expressed dismay and referred me to the manager.

The manager at least offered a clue: “One customer cleaned us out on Friday. Don’t bother checking the other stores. Same thing happened.”

The manager excused himself before I could ask who the customer was.

By chance, the dots started to connect. A reader of my blog on the Westside called to report unusual truck traffic on Sunset Boulevard.

I didn’t think anything of it because of the repair work to the ruptured water main, but then a light bulb went on. OK, a dim light bulb.

I staked out a discrete location on Sunset just east of the repair crews. What I saw made my jaw drop.

Dozens of trucks from Home Depot, Do-It Center, Lowes and other stores were arriving at a rate of one every five minutes.

My eyes spotted a DWP worker sitting on the side of the road eating lunch. I asked him what all the hardware store deliveries were about.

He ignored me, at least until I pulled a Ben Franklin from my wallet.

“Duct tape,” he replied. “If you want more information, it will cost you.”

Given that my Starbucks money for the month was now gone, I pursued another line.

I called on a friend who is a brilliant chemist. He gave me permission to use his name – Walter White.

Walter did some quick calculations and determined that a triple layer of duct tape would resist pressure and leakage. Even more if it were applied along an extended length of pipe.

“How long would it last?”

Walter replied, “300 years, with a 99.5% certainty. Definitely blue level grade.”

Just long enough to fit the DWP’s strategic plan for water main replacement.

A coincidence?

Maybe, but given the brains running the city, it’s as good a plan as we will get.

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Kevin James appeared in front of a packed house at the Los Angeles Neighborhood Council Coalition. I give Kevin, with whom I am well acquainted and respect, points for facing the public soon after the release of an audit report that would have made any other Los Angeles city executive run for cover.

As he pointed out, the audit of the Bureau of Street Services (BSS) covered a period from FY 2011 through FY 2013 – before Kevin was appointed by Mayor Garcetti, a fact not highlighted in Galperin’s report. For that matter, the period fell squarely under the regime of former mayor Antonio Villaraigosa. Villaraigosa’s idea of a good Public Works Board appointment was none other than Andrea Alarcon who served from 2009 through 2012 as the board’s vice president and later president.

Kevin came prepared as a lawyer would for a court appearance. That’s good, and he is an attorney after all. We should expect the same of all officials.

City Controller Galperin’s audit report struck not only at the heart of the problems at the Bureau of Street Services, but it exposed a problem that is probably prevalent throughout the city bureaucracy.

Without competent managers and reliable data, it is impossible to run an efficient operation.

A few years back, former City Controller Wendy Greuel was gung ho about performance-based budgeting. Greuel viewed it as an end in itself; that implementing a system designed to capture metrics and using it to develop financial and operational plans was a panacea for managing the city’s deficient financial performance. It was good press release stuff, but Greuel was, in the words of Mayor Garcetti, the press release controller.

Well, rolling out performance-based budgeting in an organization insulated from modern conventions is as effective as allowing a caveman to drive a car (although I often wonder about some of the drivers on our roads).

I think we have had cavepeople at the steering wheel of BSS for way too long, Ms. Alarcon being one of them.

Nazario Sauceda, Director of BSS, an affable individual who has reached out to the Neighborhood Councils, knows about pavement, but his management skills are suspect. For example, it appears he is incapable of performing a simple make-or-buy calculation. BSS was contemplating investing $18-million to upgrade its asphalt production facility.

What was the benefit?

None.

At best, the city might come close to matching the production cost of the outside vendors who already provide most of the material to the city today.

Sauceda could have penciled the numbers on a cocktail napkin and concluded it would not be worth the investment under any scenario, and especially so if the city could have sold or leased the land underneath the plant.

Allow me to digress, but Mayor Garcetti should take note: his back to basics agenda should rule out in-house production when reasonably priced sources are available elsewhere.

Kevin strongly disagreed with this finding. His logic was sound, but he failed to view the investment in the greater context of capital budgeting. The city has limited funds – we can go on forever why that is the case – and must ration major improvements. That means even some economically viable projects will not be approved.

Kevin made a good point about the importance of having alternate supply sources and the difficulty of obtaining permits for asphalt production facilities. But do we really want to have city employees with some of the highest fringe benefit loads in the country producing asphalt?

What about licensing the production? Perhaps wrapping it with a sale-leaseback where the proceeds would help fund the reconstruction some of the F-rated streets. Don’t forget, a reconstructed road would have a long useful life which could match the term of the sale-leaseback.

Personnel management isn’t one of Sauceda’s strong suits either. Direct salary cost as a percentage of total salaries for FY 2012-13 is not only very low – 56% compared with 70-80% other cities – but the ratio is worsening. It was over 58% in FY 2010-11. Is Sauceda’s annual bonus increasing?

Kevin challenged this finding as well. What was the basis of Galperin’s conparisons? How did the auditors determine what was direct vs. indirect?

Long Beach and Tacoma, mentioned as examples in the audit report, are not in the same league as Los Angeles, according to Kevin. True, but scales are relative.

The other point regarding delineation of costs is a far more valid issue. The operations do not line up well from city to city. Galperin should disclose how he arrived at them.

The audit also criticized BSS for unsubstantiated performance statistics. Good luck in preparing a strategic plan when you can’t rely on your core statistics. One metric that is highly questionable is for potholes. Potholes come in such a variety of shapes and sizes that BSS may as well be counting almonds, plums and oranges. In would be more meaningful and easier to report the amount of asphalt used to repair potholes rather than the quantity filled. BSS could also measure the repair expense more accurately.

One very disturbing observation made by Galperin’s staff had to do with the overall condition of LA’s streets versus other cities. Los Angeles came in at 64% in poor condition. For that matter, the three worst in the sample of 12 cities were all in California – with San Francisco and San Diego running close behind at 60% and 55%, respectively. Even more perplexing, snowbelt cities such as Chicago, New York and DC were in far better shape. I haven’t seen any snowplows on Sunset Boulevard lately, although one might come in handy about now.

I strongly agree with Kevin’s position on fees charged to utilities who must break through street surfaces to repair their infrastructure. Fees largely transfer funds from one pocket to another and the consumers/taxpayers are ultimately charged indirectly. It is a waste of resources to collect and account for them. However, the BSS budget should include an allowance for this type of work, which is a certain to occur as a water main break. BSS must be fully empowered to coordinate the work of the various utilities.

Overall, the residents owe Ron Galperin and his staff a solid vote of confidence. James should also be grateful….and I believe he is. Galperin has exposed the skeletons before they can jump out and bite the Public Works President. He can now work on solutions, although the road to change will be difficult given the degree of political meddling by the City Council.

Controller Galperin has also committed to revisiting BSS in one year.

Mayor Garcetti and Kevin James should put Sauceda on notice to make substantial improvements. Certainly, BSS, Garcetti and James should reach a consensus as to the specific goals. That’s not really process for an auditor – Galperin has no control over budgets and city operations – but he needs to be informed.

As an appointed commissioner, James will take responsibility for future performance. He is not one to duck them. Sauceda earns $199,000 per year of our tax money. It is reasonable for Kevin to hold his feet to the fire.

The most important takeaway from this audit is it represents a wake-up call to the residents. The front page coverage will increase awareness about city governance and its failure to prioritize.

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