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Valley Glen and NoHo, along with parts of Van Nuys, could be in for a rude awakening. Valley Village, would also be in the mix.

The only thing worse is a noisy rude awakening.

And that’s what the North Valley could experience if the residents of those communities do not get involved in the Burbank Airport Noise Task Force process. Portions of these communities already absorb some of the noise.

The crux of the issue is a shift in departure flight paths to one nautical mile farther south. As a result, residents of Studio City and Sherman Oaks have been enduring more aircraft noise than ever before. That is unfortunate, but the alternative solutions offered by groups representing neighborhoods south of the 101 would push almost all of the traffic north of the freeway. They argue that they were not warned of the shift, and it is only appropriate for the north to bear the full burden of the noise because residents there knew there would be air traffic when they bought their homes.

They have reason to be upset, but we all live within Burbank Airport’s market. Many passengers come from all over the Valley. It is only fair that the noise be shared as much as possible over the broadest area: from Mullholland Drive up to the buffer zone for arrivals (arrivals come in from the west and follow Sherman Way).

Under the proposals demanded by Studio City and Sherman Oaks, flights would turn to the west soon after take off from Burbank (before crossing the 101), then parallel the freeway before fanning out over the North and Central Valley neighborhoods. That’s around around 200 flights a day.

There has been much finger pointing at the FAA, that the agency is responsible for the current flight paths. I think the FAA did a decent job of defending its process at the November 6th hearing. No one has yet produced tangible evidence that the FAA was behind the shift.

Missing at these meetings are air traffic controllers and pilots. They surely could shed some light on what’s happening. It would be better than relying on subjective claims about the FAA’s role.

There have been articles in the Los Angeles Times and Daily News covering the controversy, along with local TV news, but almost all of the content has been from the perspective of the southern neighborhoods, including the Hollywood Hills. There’s a good chance that many residents north of the 101 are unaware of what might be coming their way.

If you are asking why Council Member Paul Krekorian has not communicated this possible development to Valley Glen, Valley Village and NoHo, it is because he endorsed The Studio City/Sherman Oaks proposals even before the first public meeting was held back in August! Yes, before he heard from his constituents who would be on the receiving end of a shift to the north, he appeared in a video on the UpRoarLA web site and where he pledged his unequivocal support for their proposals.

Rep. Brad Sherman (D-Sherman Oaks) stated back in March: “Communities in the San Fernando Valley deserve to be heard and have their concerns completely addressed.”

That is clearly not happening because most residents have been effectively excluded from the hearings.

At the conclusion of the November 6th Task Force meeting, I challenged Mr.Krekorian to state whether he planned to share the proposals with the northern part of his district. He replied, “They have you!”

The last time I checked, the Council Member is responsible for keeping all of his constituents informed, not just his southern base. I would be happy to handle it for him if he gave me half of his compensation.

I do not blame him for being upset with me – my articles have been critical of his handling of this matter – but politicians have an obligation to actively promote participation with their constituents. That can best be achieved by sharing critical information with all of them, especially when it involves quality of life issues. Apparently, Mr. Krekorian neither wants to face backlash from those who would be adversely affected, nor offend his base.

Valley Village Homeowners Association has reached out to its members, but Valley Village is the smallest community in CD2. NCVV also conducted outreach to its stakeholders, who largely overlap with VVHA’s population.

Our position has always been:

No one part of the East Valley should bear the full brunt of the noise; it should be shared by all areas south of the arrival path, without jeopardizing safety.

We support a cap on flights and penalties for airlines that flagrantly violate curfew hours.

The FAA should insist that the airlines transition to quieter engines over a reasonable time period.

This message was shared with Krekorian and Garcetti, along with Congressmen Sherman and Cardenas.

I encourage all constituents north of the 101 to attend this next task force meeting, which is scheduled for December 4 at the Burbank Airport Marriott, starting at 6:30PM and usually lasting until 9:30. Fill out a speaker card if you want to make a public comment.

If you want to have a say, you must participate!

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Come Fly with Me

The unfriendly skies over the Southeast Valley got a little unfriendlier on October 18th.

A much anticipated public hearing dealing with the noise of departing jets from Burbank Airport was held at the nearby Buena Vista Library.

About 200 people filled the auditorium, plus more by an open exit door.  Representatives from the airport were in attendance, along with LA City Council Member Paul Krekorian and Congressman Brad Sherman. It was apparent that a large majority of the audience hailed from Studio City.

No one from the FAA was there, a major disappointment, but had the agency sent someone, it would have been the equivalent of Custer riding into the Little Big Horn Valley.  A different valley, this time, but the results would have been the same.

I can understand not wanting to face an angry crowd which has already staked out a position vehemently opposing the increase in departing flights over their neighborhoods, but there are times when one has to face an angry public.  Interestingly, Mayor Garcetti, who seldom faces an unsympathetic group, tried doing that the day before in Venice regarding homeless shelters; perhaps the FAA read this article . By the way, Garcetti was criticized a few times at the Burbank meeting for his lack of involvement on this issue and for being away in general.

Just as the controversy over where to place homeless shelters, flight paths contemplated by the FAA are drawing a passionate response.

There were those who adamantly opposed all but a few flights over their neighborhoods. That point of view primarily came from the residents who live in the hills.  They cited the acoustical effects created by the canyons and hillsides.

Almost all opposed the overall shift in flights to the south of the 101 and called for dispersing the paths over a wider area.

Some stated that real estate values have been adversely impacted.  All other things being equal, that is true, but it is the “all other things” that also impact prices.  Who would have predicted that Porter Ranch would be experiencing a real estate boom only a few years after the Aliso Canyon gas leak? But that’s what was reported in Sunday’s Los Angeles Daily News. The gas field is still there and there is no guarantee against a re-occurrence. There are many factors that go into purchasing a home, certainly noise is one of them, but convenience, architectural style, view, amenities and even zip code enter into the decision.

I suspect even if the FAA agrees to disperse flights, there will still be an outcry from parts of the Valley not previously impacted, but would be if the pattern changed.

One person proposed having more (not all) flights depart directly to the north….and there are conditions that apparently require it.  The rationale being that most flights are heading to destinations in that direction.  I imagine the North Valley, Santa Clarita, Sunland and Tujunga would want to weigh in on that.

There were suggestions for planes to gain altitude at a faster rate so by the time they turned into residential neighborhoods there would be more elevation between them and the ground below.  But that could create more noise for those neighborhoods relatively close to runway 15.

Personally, I have observed some flights out of Burbank with sharper angles of ascent, so it can be done. It is worth noting, though, that planes use the most fuel (up to 25% of the total consumption), and produce the most harmful emissions, during takeoff, according to an article in an on-line publication of the Worldwatch Institute, an organization which deals with sustainability issues.   Does that mean a steeper ascent would create more emissions over a concentrated area? Something to consider.

If the flights paths were dispersed over the Southeast Valley, there is still a question as to the location of the turning points.  Remember, the planes are not flying straight, but in arcs. The timing of the turns would affect the noise level for many Valley communities  to varying degrees.

My statement on behalf of Valley Village opposed concentrations over any single neighborhood (including our own) and urged the FAA, within the framework of safety, to fine flagrant airport curfew violators; to set a timeline for the commercial carriers to replace older 737s with the new and quieter – also more fuel efficient – 737MAX series; and put an immediate freeze on additional flights until the results of an EIR can be evaluated.

Everyone has legitimate gripes, but it would require the Wisdom of Solomon to carve up the skies in a manner that would please the general public.

I have not seen King Solomon’s name listed in the FAA or Burbank Airport’s organization chart, neither is he on any ballot for elected office.

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Give the senator credit. He keeps trying to peddle his “tax modernization” bill, altering subsequent versions to deal with the opposition or disinterest it has received so far. His rationale is that today’s state tax structure does not reflect the current nature of the economy, one that is based more on services than in the past, and is far more volatile due to its growing reliance on personal income tax.

According to the state’s analysisBeginning on January 1, 2020, SB 993 imposes the tax (on the receipt of the benefit of a service by a business in California) on a “qualified business,” defined as “a person, corporation, partnership, sole proprietorship, limited liability company and limited liability partnership engaged in business to provide a product or service for the purpose of producing income taxable under federal income tax law.”

The rate business will pay starts at .75% in 2020 and climbs to 3% in 2022, thereafter.

The current sales and use tax on goods will be reduced by .5% in 2020, then to 2% by 2022.

The state revenue impact has not been estimated.

Senator Hertzberg told an audience at a recent community breakfast that the end result would be revenue neutral.  As I reported earlier, it is advisable to check his math, since he considered additional taxes of $10B per year that would have been generated by his original bill to be revenue neutral.

SB 993 is as complex as any tax legislation can be, so any projection as to its revenue impact is premature, except perhaps in Hertzberg’s mind. If he has run the numbers -even at the 30,000-foot-level – that supports its neutrality, then why not share them?

Sales and use tax revenue has decreased from 61% of the general fund back in 1950, to 20% today, and the service industry has grown much larger than the agricultural and manufacturing sectors. But data published by the California Department of Finance show sales and use tax revenue has grown from $2B per year in 1970 to $37B today. So, while a much smaller share of the pie, it is a much larger pie. How big a pie do we need, or can we afford?

Let us not forget that service companies pay income taxes, too, along with sales taxes on purchased goods.  The growth of this sector, then, has increasingly contributed to the state’s treasury over the years.

So to say California’s tax collections have been limited by the shift in the economy’s constituent parts is misleading.

Understanding the sources of tax revenue is also important.

For example, take Subchapter S corporations. These are hybrid entities resembling partnerships but limit liabilities (as C corporations do). The net income is passed directly to the owners, not through declared corporate dividends.  The pass-through eliminates double taxation associated with C corporations (on the corporate tax return and again on the individual shareholders’ personal returns to the extent of dividends).

Partnerships and sole proprietorships also pass earnings on to the owners in a similar fashion, also avoiding double taxation.

The use of pass-through structures has increased significantly since 1980: in 2013,  U.S. income earned in the pass-through sectors accounted for 51% of total business income (C and S corporations plus sole proprietorships and partnerships), compared to only 21 percent in 1980, per the US Department of Treasury, Office of Tax Analysis Working Paper prepared in 2016.

As you can imagine, this muddies the waters in any kind of tax revenue source analysis. One needs to carve out the pass-through income reported on individual returns to compare apples to apples over time. Knowing the commercial portion of personal income is critical in assessing the effect of applying sales tax on services sold by businesses.

A sales tax paid on services received by S corporations and other pass-through entities  will effectively fall on the individual taxpayers who own them. Although they will be receiving a tax break related to their personal purchases under SB 993, they will absorb the impact of the services tax from their businesses. Not all business owners or S corporation shareholders are rich. As a result, Hertzberg’s plan could end up hurting middle-income residents.

Before levying a sales tax on services, one should consider if the companies require a disproportionate share of the state’s resources.  Do, let’s say, architectural firms require  more roads, power and water than those in manufacturing or agriculture?  We shouldn’t be applying additional taxes simply because there is an opportunity to do so. There should be demonstrable correlation.

We also need to understand how much in the way of state income taxes service companies have contributed relative to all sources over time…and how much more the share will grow. It does not make sense to discourage their business customers from buying their products, but that’s what the sales tax will tend to do, as well as add to users’ costs, particularly businesses without the resources to develop in-house alternatives.

The state can smooth out the volatility in revenue by carefully managing the reserve fund, socking away the surplus from good years, and drawing them down when things head south. Sacramento already has the means and process to do that. This would be preferable to layering another tax, one which will be very difficult to administer, on top of the existing structure. It just takes some competent management.

The benefit to the residents of lowering the sales tax on personal purchases of goods could be short-lived. County and city governments may see it as an opportunity to propose additional local sales taxes. The thinking being that few would mind paying an additional quarter-point or so if they are receiving a 2% break.

I am not saying a services sales tax is inappropriate in all cases, but let’s not make the service sector a piñata for the politicians to break open and grab the goodies.

 

 

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Much has been written and said about the City of Los Angeles’ implementation of the ill-conceived exclusive trash franchise arrangement.

The news has focused on the unreliable service, excessive customer bills and lack of response by the haulers who have been granted monopolies.  Most certainly, more will be said.

But there has also been criticism of the mayor and city council for not owning up to their part in this costly fiasco.

Just not enough, and also missing a major point.

Yes, the trash monopolies are costly, but only to the residents,  The haulers are making money…..and so is the city; about $35 million per year in franchise fees.

As I mentioned in a previous article, at a recent meeting of the Valley Village Homeowners Association, the RecycLA representative told us that the fees were needed to administer the program.  I found that extremely difficult to believe and followed up with the City Controller’s office.  You can count on getting a straight answer from Ron Galperin and his staff, and I learned that the fees were going to the general fund, where there are no restrictions.

It really amounts to a virtual windfall to the city as the management of the solid waste program is already funded from the Citywide Recycling Fund, the revenue for which is provided under AB 939, the California Integrated Waste Management Act of 1989. It was the first recycling legislation in the country to mandate recycling diversion goals.

Basically, then, this makes the franchise fee a windfall for the city, if not a backdoor tax.  Even though it is paid by the haulers, common sense dictates it is baked into their pricing structures. $35 million is too much for them not to recoup from their captive audience. It is an incentive to bill the customers for anything related to trash, maybe even the rodents who most certainly dine on accumulated uncollected waste. So the city is skimming off the top at the expense of the already beleaguered commercial property occupants.

At last week’s hearings at City Hall, only Councilman Mike Bonin dared to suggest that the fees be returned to those complexes and businesses hard hit by the price gouging.

To add insult to injury, the haulers reap the cash from the sale of recycled materials, while customers face the prospect of having to pay fines for over-filling blue bins because of missed pickups.  Talk about double-dipping.

Unfortunately, the brunt of the effort to push back falls on the customers. They are the ones who must document the unacceptable level of service, along with erroneous and inaccurate billings, not the city.  They do not get paid for their efforts, unlike our council members for doing little more than threatening the haulers.

Contract law will make undoing the damage a potentially costly affair in itself, especially considering the 10-year duration of the deal.  All the more reason for reserving the windfall and returning it to those who have suffered because of it.

 

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Chaos in 2018

Whatever Kim Jong-un does in 2018, it will likely not impact Americans as much as the new tax reform bill, the Tax Cuts and Jobs Act. That’s not to understate the potential for disorder the Rocket Man might be capable of unleashing, but most experts would agree he has not reached the point where he can blackmail the United States and his neighbors in Asia.

But the IRS can make the transition to the new tax rules a painful exercise for many. You see, as with all tax legislation, Congress writes the rules, but the IRS has to interpret and implement them through what are known as Treasury Regulations. Of course, the courts are the ultimate arbiters in disputes between taxpayers and the government; so, what we see now, may not be quite what we get.

I will focus on two of the most pervasive changes affecting Californians: the state and local tax deduction and mortgage interest.

Already, confusion is endemic regarding the $10,000 cap on deductions for state and local taxes, which covers property tax as well as state income tax.

As of the day I am writing this article, the IRS has not definitively ruled on whether prepayments of property taxes will be deductible on the upcoming 2017 tax returns. Taxpayers who ordinarily incur state and local taxes measurably higher than $10,000 are beating a path to the local tax collector’s office to pay next year’s installments – a use it or lose it strategy.

It is reasonably safe to assume that if the 2018 installments represent taxes assessed for 2017, the prepayments will be deductible, but no absolute guarantees. It might be less clear for those whose property taxes are impounded by a loan servicer.

Some have contemplated even significantly withholding more state income tax from their final paychecks this year, but those incremental payments will clearly not be ruled deductible, I can think of ways the IRS might audit for that, but having the resources to do so is another issue.

What about any state tax refunds? These are normally taxable if you itemize deductions under the 2017 rules.

Recoveries of state income tax overpayments may or may not be taxable, at least to some degree.  Let’s say you are preparing your 2019 Federal return (in 2020). The state and local tax deduction  was reduced by $9,000 in 2018 because of the cap and you received a $3,000 refund in 2019 for an overpayment on 2018 state income tax, none of it should be taxed because you had received no benefit for it.  But if the refund were $9,100, $100 would be taxable.

However, a refund of a 2017 overpayment would probably be fully taxable on your 2018 return because you were able to fully deduct the tax from your 2017 federal return.

The mortgage interest deduction is even muddier. The deduction is now limited to the interest paid on up to $750,000 in principal balances related to the acquisition, building or improvement of  primary and second homes. No longer will you be able to deduct the interest on $100,000 on borrowings related to non real estate purchases secured by your home, known as home equity debt.

To the extent you had acquisition/building/improvement balances prior to December 16, 2017, they are grandfathered under the current $1 million cap, but there is no such protection for  home equity.  That deduction is lost starting with your 2018 return.

Many people were probably claiming too large an interest deduction under the old rules because they failed to accurately track the use of their borrowed funds.  However, the IRS lacked the resources to aggressively audit for this.  The lower cap makes the job of the IRS even more demanding. Whether they ramp up and extend the reach of their audits remains to be seen. My guess is that it will not be a priority for 2018, but mortgage data will be accumulated and analyzed with the goal of developing an audit plan for subsequent years.

If you are currently engaged in a  home acquisition,  the change doesn’t affect mortgages taken out under binding contracts in effect before Dec. 16, 2017 as long as the home purchase closes before April 1, 2018. So keep your eye on the calendar and make sure your contract is in order.

As I pointed out in an earlier article, this bill does not represent tax reform  Until we have a system that makes compliance and enforcement much easier, then  all Congress is doing is reshuffling the same old deck of worn out cards.

 

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Equifax SOX

Equifax  suffered one of the most significant data breaches ever, exposing confidential information stored within its network.  What’s more, three executives sold a fair slice of their personal shares in the company after the event was discovered and before it was communicated to authorities and the public.  Oh, and the sales were not part of a 10b5-1 arrangement through the SEC.  The purpose of this arrangement is to minimize the risk of insider training by scheduling sales in advance.

The company claims none of its executives knew anything about the breach when they sold.

Section 302 of the Sarbanes-Oxley Act (SOX) states that the CEO and CFO are directly responsible for the accuracy, documentation and submission of all financial reports as well as the internal control structure.

Every quarter, the CEO, CFO and others certify the effectiveness of the internal controls to the SEC.

One of the executives who sold his stock was the CFO.

Chief Financial Officer John Gamble sold shares worth $946,374 on August 1, two days after the hack was discovered. It is inconceivable that the breach was not escalated to his level within 48 hours, given the responsibility he has under the law. I have seen less significant internal control failures reported internally in that amount of time.

There will be investigations; if there was any cover-up, someone will talk, e-mail trails will exist.

But will anyone be convicted?  After all, no head of a major lending institution was sentenced criminally as a result of the mortgage meltdown.

There is yet a bigger question: how many credit rating services do we need?

Would the nation suffer if Equifax ceased to exist?

Think back to earlier scandals such as Enron and WorldCom.   Unlike Equifax’s, their’s were of a financial nature, but poor internal controls set the stage for the fraud. SOX was passed by Congress in response.

Both of those companies are gone. Are we worse off today without them?

 

 

 

 

 

 

 

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As I wrote in an earlier article, State Senator Bob Hertzberg is a master of the English language.

According to his bio, as an undergraduate English major, he wrote a 400-page handbook titled A Commonsense Approach to English.

Unfortunately,  the senator has embarked on a course of language manipulation as his strategy to significantly raise taxes for all Californians. The people who can least afford it will bear the brunt of Hertzberg’s money-grabbing obsession.

After he was elected to the State Senate in 2014, he did not waste any time in rolling out a new way to relieve residents of their hard-earned cash.  His first crack at it was SB8, which would have taxed most services – from the labor on repairs to haircuts. SB8 died quietly; it’s replacement, SB1445, isn’t going anywhere at the moment.

He had the hutzpah to refer to the bill as “tax modernization,” as blatant a euphemism as, say, calling a mass layoff a “workforce imbalance correction.”  It would “modernize” an additional $10B  per year from the people and businesses in the state, but disproportionately from low- and middle-income earners.

Hertzberg, the serial hugger, perhaps feeling the pain of unrequited love from that attempt, employed his wordsmithing skills again, this time to win passage of SB231. By redefining sewer to include stormwater,  the bill opened the door to flood property owners with expensive parcel taxes.  Since it is already legal to raise taxes to pay for sewer service improvements without a vote, taxes for stormwater mitigation projects will not require voter approval either.

Words have meaning, as Hertzberg knows very well.

They have even more meaning when they are embedded in the constitution. Any new interpretation or redefinition of language affecting state or local governments’ ability to raise taxes should require a formal amendment. The process of changing the state constitution should not be conducted like a game of Scrabble. To do so is disrespectful to the people of California.

Responsible leaders will do their best to mitigate tax increases with spending restraint.

You will not see Hertzberg deal with cost containment, including reining in excessive employee post-retirement benefits.

Neither he nor his colleagues will ever attempt to prioritize capital spending. We cannot afford to pay for every high-end project.

There was a time when Senator Hertzberg was a reasonable politician.  He probably would have made a good mayor, certainly a better one than Antonio Villaraigosa.  But somewhere along the line, his ego probably got the better of him.  He has ceased to be a responsible leader and now resembles the essence of what Thomas Nast depicted in his caricatures lampooning Boss Tweed.

State Sen. Bob Hertzberg, D-Van Nuys, pumps his fist in celebration after his storm water bill was approved by the Assembly, Thursday, Aug. 31, 2017, in Sacramento, Calif. If signed by the governor, Hertzberg's SB231 would let local governments charge residents for storm water management systems without voter approval. Photo: Rich Pedroncelli, AP / Copyright 2017 The Associated Press. All rights reserved.     Thomas Nast (1840-1902). The Power Behind the Throne "He Cannot Call His Soul His Own." 1870. Museum of the City of New York. 99.124.7.

 

 

 

 

 

 

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