Archive for November, 2014

It’s the start of the Holiday season and Controller Ron Galperin is going to check his list to see who has been naughty or nice in the city.

In the case of Brian D’Arcy, the head of the influential IBEW Local 18, the union representing most of the DWP’s workers, it will be an audit checklist which determines if he finds coal in his stocking. Not from the Navajo generating station either.

The very first city audit of the controversial nonprofit trusts, which will start in early December, has already been saddled with a handicap in the form of a restriction as to how far Galperin can look back. Only data from the most recent five years will be open for examination. That’s a limitation almost any CPA would find unacceptable, but Ron lives in the world of politics. With hardly any support from the City Council, several of whom depend on support from the union, he will have to make the best of it.

In reviewing a sample of transactions from the data provided, Galperin will need to consider two benchmarks to determine whether any are inappropriate: those that are permissible under the by-laws and internal policies of the trusts, and those that are in the best interests of the ratepayers.

Do not assume for a moment that the benchmarks overlap.

What may seem perfectly reasonable to the union could amount to poor value for the money to the ratepayers, especially considering the DWP corporate safety program (the trusts ostensibly exist to improve safety) is funded by over $100 million from the utility’s annual operating budget. By contrast, the safety programs managed by the trusts are fully funded by the city’s contribution of $4 million per year – $1 million of which goes to salaries! How many of you would donate to a nonprofit organization that takes 25% off the top for payroll before adding other administrative costs?

To get a sense of how the trusts have been managed and operated, it will be important for Galperin to review the bylaws and minutes from board meetings – including how the trustees voted on important matters, such as determining delegations of authority, key hiring decisions, budgets, approval of financial statements…..

Ron and his auditors should interview past and present members of the boards, the staff, the external auditors and any other contacts of the trusts to gain insight into what are arguably the most covert bodies in the city. Subpoenas may be required and the City Attorney may have to step in.

It will be important to review individual transactions in the context of the entire history – ideally that would amount to all years, but the five-year limitation will make that difficult. The risk is that a one-off event may seem inconsequential by itself, but when combined with others could disclose a questionable trend. I would be particularly interested in events and transactions that occurred in the formative years of the trusts, but that period is blacked out, and it may take another court battle to get access – that’s assuming the City Council would even press the issue. Given that the City Council approved this substandard audit settlement, one must question the resolve of the members.

Galperin must demand an answer as to why the trusts have $12 million in cash squirreled away as of June 2013, probably $13 million by now. That represents more than three times the annual operating expenses. The trusts are organized under IRC 501c(6) and can support political causes and attempt to influence legislation. $12 million can go a long way in that regard.

I am less than optimistic we will learn enough from the audit, but it may be enough to provide political cover for the City Council. It will provide the appearance of progress, enough to sell to the ratepayers, many of whom may not be informed enough to question the judgment of their council members.

For those who are concerned about transparency and are following this conflict, let’s support Ron by using every opportunity to corner your council member and insist on complete, unfettered access to all records and persons associated with the trusts.

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It is the holiday season and the networks will be rolling out Christmas classics soon.

Miracle on 34th Street is usually among the first to show up on our home screens. The film juxtaposes commercialism with sentimentalism, not unlike the contrasting approaches of the opposing candidates in the 39th AD.

Well, Thanksgiving and Christmas arrived a little early for the good people of the 39th Assembly District.

Almost an unknown and virtually unfunded LAUSD parent volunteer, Patty Lopez, holds what might be a safe lead with another tally of provisional and mail-in ballots scheduled for Monday. The race was one of the tightest in memory.

Her opponent, Raul Bocanegra, the incumbent for the Assembly seat, had cash to spare, even playing Santa Claus for his friends running in other races deemed to be competitive.

How Lopez put herself in a position to snatch the seat right from under him will be debated for a long time.

In my view, her victory – if it holds up – will not be a template others can easily apply successfully.

It may have been a confluence of factors – a perfect storm in an electoral sense.

Party affiliation was not a factor; both are Democrats.

Could it have been affinity?

Lopez projects a much friendlier and trusting persona. Her cultural roots probably helped – she was born in Mexico and her Spanish dialect may have been comforting to the voters in the district, which counts many immigrants from Mexico in the registration rolls.

By contrast, Bocanegra looks like he was cut in the mold of a hand-picked PRI candidate. I am not implying he follows the PRI’s lackadaisical approach to dealing with corruption, but were the voters of the 39th wary of anyone who comes across as an apparatchik of a party machine?

Bocanegra made his work on enacting credits for film production a focal point of his campaign. All well and good for the industry, but no measurable impact on the district.

Bocanegra may have been a victim of his own success in the primary where he finished 40 points ahead of Lopez. Arrogance can be a politician’s worst enemy and the incumbent most likely thought he was bulletproof as a result. Even Bob Hertzberg did not take his State Senate campaign against a financially strapped unknown lightly. Mailers, neighborhood council and HOA appearances were a staple of Big Bob’s strategy right to the end. He threw in more than a few hugs, too.

Assuming a victory is confirmed, how will Ms. Lopez be received by the Assembly’s leadership, not to mention Bocanegra’s colleagues? Will they toss her a bone, assign her to an obscure committee or one where the chair suppresses her input? After all, Lopez knocked off one of their own.

If so, the Democrats do so at their own risk. Lopez is now a very public figure in light of the publicity she has received for her improbable showing. They cannot afford to disrespect her without accusations of gender and even ethnic discrimination.

More importantly, how will Lopez deal with success?

I certainly do not see her even nudging the ideological mix of the Assembly. Will she fall prey to money from lobbyists?

Ms. Lopez would be starting off with a clean slate if the current results hold up. That’s her ace in the hole. She owes nothing to anyone except her constituents. Let’s see how she plays her hand.

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My interview with KABC

It was a pleasure to talk to KABC’s Doug McIntyre about the scandalous settlement between the city and the union representing DWP workers – IBEW Local 18 – over the City Controller’s right to audit two controversial and secretive trusts controlled by the union and fully funded by the ratepayers.

You may want to read my latest article on the subject.


The settlement will enable us to learn something, but no where near enough about the operations of these trusts.

Here’s the link to the broadcast.

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The settlement between the City and the IBEW Local 18 regarding the City Controller’s right to audit the controversial nonprofit trusts represents an important step forward – but only a baby step.

Regardless, we owe Controller Ron Galperin our full support as he continues to press for further access to the trusts’ records through the courts. God knows he is not receiving much, if any, backing from the City Council. Mayor Garcetti and City Attorney Feuer appear to be the only public voices standing behind him.

The agreement allows an audit of the records for the last five years. It’s an important start in as much as time is against the City. The longer the process is delayed, the more likely key data and documentation could be misplaced or altered. It might already be too late in some instances.

It would ordinarily be spurious to suspect fraud before conducting an audit, assuming the absence of any red flags. However, the stonewalling by union boss Brian D’Arcy represents a bright crimson banner.

After reading through the agreement, I have the following concerns:

The city’s representatives to the Trust Boards will be limited to the General Manager of the DWP and other managers of the utility appointed at the discretion of the GM (Section II.1).

With all due respect to Marcie Edwards, the current GM, she is in a position where she must deal with D’Arcey on a regular basis. In a sense, both of them are in a symbiotic relationship when it comes to directing the personnel and resources of the giant utility – hardly the degree of independence you would want in a board member. Therefore, it is important that Mayor Garcetti have full discretion to appoint people who can cast a fresh set of eyes on the activities related to the trusts, free of the daily pressure D’Arcy is capable of applying.

After the completion of this audit, the five-year period will be off limits for further testing, especially any substantive audit work (Section II.5.11). The agreement states: “..the Controller agrees that he shall not conduct any further audit of the Trusts solely for the five fiscal years covered by this Agreement and shall not cause to be issued or seek to enforce any subpoenas in support of an audit, or otherwise attempt to gain possession, custody or control of any TRUST Documents, for those fiscal years.”

In other words, Galperin gets one shot at it. So, if the City is eventually allowed to audit other years, and a suspicious transaction is uncovered in the course of that audit reflecting on activity in the closed periods, it will be tough luck for Ron. It would make it difficult to connect the dots for a pattern of abuse spread over a long period.

It is also conceivable that D’Arcy could block the city from using data from a closed period to look backward. For example, a single transaction in a recent year that appeared to be reasonable as a one-off event might take on a new meaning if considered in light of an older one.
Although the agreement uses the term “unfettered access,” nothing is unfettered unless it can be viewed in the full context of events.

Denying the issuance of subpoenas related to the activities of the closed years bestows the same client confidentiality advantages enjoyed by attorneys on the CPAs employed by the trusts. In other words, D’Arcy can claim the equivalent of attorney-client privilege, essentially securing any relevant evidence from the public’s view.

Notwithstanding the above limitations, Ron is capable of making the best from a weak hand. But let’s not put him in a position where he is trying to win at solitaire with only 51 cards.

As I stated earlier, it is important we support him and, equally important we put pressure on our City Council representatives to back Ron publicly – because D’Arcy has proven to be a master at dividing and conquering.

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Weather Whines

Let’s put politics aside for the moment.

As we creep closer to the rainy season in Southern California (if there is a rainy season), the local weather reporters break out of their Steve Martin/LA Story mode and put on their best dour expressions, then unleash doom and gloom projections.

Mind you, the doom and gloom are relative.

For example, I listened to KNBC’s Fritz Coleman the other day as he reported on the Polar Vortex’s approach towards the nation’s interior.

Pretty sobering.

After he was through, pausing just a second to take a breath, he put us Angelenos on notice. In the same somber tone he used to describe the frozen plague descending on the East, he warned of the potential for rain later in the week.

The potential, not even a certainty.

It doesn’t take much to send our local weather people into a vortex of fear, as Jimmy Kimmel reminded us last year around this time.

I recall one reporter hushedly utter that there was a “threat of drizzle.”

Perhaps I am being too critical. After all, it may have been Category 3 drizzle. Time to cover the outdoor grill and stock up on your favorite Chardonnay, with some extra Brie, from Trader Joe’s – that is, if the shelves have not already been cleared by your panicked neighbors.

Yes, I know burn areas can be devastated by steady periods of rain. One can understand the voices of concern when the Pineapple Express or a front from the Gulf of Alaska is bearing down, but those are relatively infrequent events.

But this is Hollywood, where drama rules and where the weather reporters have names like Dallas Raines (actually, Raines is one of the best in the business and is a certified meteorologist).

That’s all for this week. I must hunker down – maybe even change my wiper blades – and start thinking about next week’s article – if there is a next week, to paraphrase the late Don Pardo’s Spanning the World sign-off.

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The Republicans are up by two in the US Senate and could very well pick up two more seats (Alaska and Louisiana), giving them 54. With 53 or 54, the GOP will have little worry about one-off defections on some votes that would put Vice President Biden in a position to cast the tiebreaker. 52 seats could be a little dicey for the Senate Majority Leader-Elect McConnell to control on some issues, but he should have his way almost all of the time.

At stake is a stockpile of legislation passed by the Republican House that has been blocked by current Senate Majority Leader Harry Reid. These include jobs bills, ACA fixes and the Keystone Pipeline.

In all, there are about 350 bills on the sideline in the Senate, some with strong bi-partisan support. McConnell will be in a position to cherry-pick which bills advance for consideration. If he is smart, he will be conciliatory to some of his Democratic colleagues by allowing amendments.

Aside from Keystone, only a handful of the stalled bills have star power that will propel them to the headlines and, therefore, become rallying points for supporters and detractors. But there are others, when viewed in the aggregate, could have significant impact on the economy. With some horse trading, McConnell could enlist support from several Democrats to advance his broader Republican agenda by backing bills which will make them look good in their respective states.

The Republicans to be successful, then, need to manage the legislative backlog in the Senate as a whole and not by the individual pieces. While they bemoaned Reid’s iron hand approach to suppressing bills initiated by the House, they now have a stash of ready-made components to package and roll out.

President Obama has the veto power and could block everything, but he would then be viewed as the same obstructionist he accused the Republican leadership of being. In the process, he would likely alienate some Democrats and hurt the party’s appeal in the 2016 elections. Even a lame duck president does not want to do that.

To protect his party, Obama should emulate former presidents Clinton’s and Reagan’s willingness to strike deals and avoid Gerald Ford’s excessive use of vetoes, according to New Your Times columnist Michael Beschloss. Reagan and Clinton are generally admired and respected; Ford is little more than a footnote in history.

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I write almost exclusively about state and local politics, along with a spattering of other subjects.

I have rarely opined on national politics. That’s not going to change other than to say the race for control of the US Senate will not produce a clear winner.

Most experts expect a margin of plus or minus one or two for either party.

Is that enough to formulate significant legislation?

Absolutely not, especially when you can count on a couple of swing votes.

On election night, I will be far more interested in the outcome of certain races, particularly underdog Ashley Swearengin’s bid for State Controller and the heated battle between Sheila Kuehl and Bobby Shriver.

I agree with my Citywatch colleague Ken Alpern: Yes on props 1 and 2, No on 45, 46 and 47.

It so happens I have a class on Tuesday night, so my attention will be diverted to earning more credits towards my CPA license renewal. The subject is pension plans – as most of you know, my favorite topic.

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