The tables have turned on the city's 89 neighborhood councils, the civic volunteers who sometimes loudly criticize the massive budget deficit that has built up under Mayor Antonio Villaraigosa and the Los Angeles City Council.
Last month, following an audit of the city-funded system of neighborhood organizations across Los Angeles, City Controller Wendy Greuel said she found a "systematic failure of accounting and fiscal responsibility" — and suddenly it was the neighborhood groups who were on the defensive for unruly spending.
Her report notes that several wayward organizations among the 89 racked up a total of $276,000 in questionable expenditures — a finding that comes at a particularly bad time, just as the City Council is scrutinizing its own, groaning $218 million budget deficit.
The vocal neighborhood civic leaders, who often criticize City Hall for failing to do its job, now could be among the first to see their modest $45,000-a-year operating funds slashed.
The Department of Neighborhood Empowerment (DONE), which is responsible for ensuring that the neighborhood councils use their money properly, failed, and is also on the chopping block. Half of the small department's 38 staff jobs may be cut under budget czar Miguel Santana's plan to end the city's potentially disastrous downward financial spiral.
Neighborhood-council members have been quick to fire back — and on Tuesday, the council reacted by delaying its budget-slashing plans.
Michael Cohen, an advocate with the Reseda Neighborhood Council, says that former City Controller Laura Chick found that the system of checks and balances originally set up for neighborhood councils was not working but that despite her findings, for years "the city didn't do anything about it."
Across town, Doug Epperhart, a member of the Coastal San Pedro Neighborhood Council, isn't surprised by the embarrassing new audit.
He says City Hall adopted a badly thought-out plan for tracking neighborhood-council dollars, and now a handful of bad actors has taken advantage of the flawed system, hurting the reputations of dozens of neighborhood councils that know how to handle their budgets.
"I was the treasurer of my kid's PTA, and we accounted for not $50,000 but $75,000, and we did just fine," Epperhart says, "and 99.5 percent of [neighborhood-council officers] do it just fine, and then we bump into a city that basically creates the most difficult and complicated system possible."
In fact, the audit shows that under General Manager BongHwan Kim, the Department of Neighborhood Empowerment is not following proper accounting procedures, and Kim has failed to correct well-known problems that have been around for years.
Among other things, neighborhood councils spent a total of $124,000 on supplies and other items whose billing information appeared to be "split" in efforts to avoid requesting spending approval from Kim's department.
But, as Epperhart notes with irritation, "The Department of Neighborhood Empowerment told us to do it! ... People weren't stealing the money, they were just getting really creative" about paying legitimate bills without dealing with DONE. Under Kim, the troubled department has a huge backlog of routine paperwork — including more than 300 quarterly financial reports that remain unprocessed.
In his three-year megabudget plan, Santana is seeking to end the use of bank cards by neighborhood-council members. The bank-card method was opposed years ago by former DONE General Manager Greg Nelson, who argued that neighborhood councils should instead use checks requiring two signatures. But Nelson's advice was ignored by elected city leaders, who allowed the neighborhood councils to continue to use bank cards.
Most of the money that goes to the groups is spent properly, on such things as outreach mailings to residents of the 89 city neighborhoods, rent for office space and programs that promote community safety, awareness and beautification.
Neighborhood-council advocates, stung by ugly headlines about a neighborhood-council leader who allegedly has gambled money away, point out that that's hardly the norm.
The Pico-Union Neighborhood Council, for example, last year organized the Pico-Union Community Health Fair, whose participants provided free health services and education to residents in Spanish, English and Korean.
And in the densely populated Harbor Gateway community, where gang activity is common, the neighborhood council hosted a summer program for kids in an effort to ease racial tensions.
But five neighborhood-council leaders face criminal charges for misappropriating taxpayer funds, and some City Council members appear poised to capitalize on the bad news by slashing funding to all 89 neighborhood councils.
Most recently, James Harris, former head of the Empowerment Congress Southwest Area Neighborhood Development Council in South Los Angeles, has been indicted for misuse of $152,000, embezzlement and falsifying receipts. Nobody at DONE noticed that Harris, elected to serve on a neighborhood council representing part of South L.A., had three prior convictions for robbery.
"The checks and balances weren't there," says Councilman Dennis Zine, who has represented the San Fernando Valley for the past eight years, and was active in efforts to found the system of neighborhood councils in the 1990s.
Los Angeles is one of only a few cities in the United States that has such a system. Over the years, the 89 groups have become more vocal — especially in their disdain for controversial programs, and fee and tax increases pushed by Villaraigosa and the L.A. City Council.
The catalyst for the neighborhood councils was a secession movement launched by residents in the San Fernando Valley. "The attitude prior to that was, 'Everything happens downtown and nobody cares about the suburbs,' " Zine says. "So we wanted to change that mentality by establishing neighborhood councils, which is what we did."
Although Zine was one of the founding members, he has been disappointed with both DONE and the councils. Now, he says, "$45,000 times 90 is a lot of money — and we don't have sufficient dollars to keep our police, our fire and our municipal services. So that's one of the issues that we're stumbling with now."
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Councilman Bernard Parks, who has supported Santana's budget-cutting plans, says it's likely that DONE and the neighborhood councils will feel the pain. "Not only are we in tough times, but we are in a situation where we don't have a lot of time," Parks says.
The city is under increasing pressure to act fast because its budget deficit grows worse each day that the City Council puts off cutting an estimated 1,000 to 1,500 city government jobs or finding some other budget solution. Even a 30-day delay costs up to $4 million in public funds, because spending by the city's massive departments, which employ more than 40,000 people, far outweighs revenue.
Paul Hatfield, a CPA and an active member of the Valley Village Neighborhood Council, says "hell was raised" last year after the City Council proposed slashing neighborhood-council budgets from $50,000 to $11,000. In the end, neighborhood councils' annual funds were cut by only $5,000.
Hatfield, unimpressed by elected leaders' pointing fingers at neighborhood councils, says, "I think it would be interesting to see a contest, to see which City Council member could balance his or her own checkbook."