City Hall's 2010 DWP Debacle
In the past 31 days, Mayor Antonio Villaraigosa has taken one of the most tumultuous rides in the annals of municipal power politics. On the subject of the DWP rate hike, Al Gore weighed in by satellite, City Controller Wendy Greuel wrongly declared the city would go broke in May, the mayor called for a partial government shutdown and the city's credit rating and reputation took a very public beating.
Yet City Hall watchers cannot agree on what the drama is really all about.
Is it a capitulation to DWP union chief Brian D'Arcy, who for years fought against going green but now purportedly sees rate hikes paired with green initiatives as the best way to amass greater political power? Is it the first unsteady effort by a party-boy mayor who has shown little interest in the workings of city departments to now finally get tough fiscally by seeking a sacrifice from residents? Or is it none of the above?
One thing is clear, whatever their intentions, the mayor and his key advisers — Austin Beutner, Jeff Carr, Jay Carson and Matt Szabo — won a prize they almost certainly did not seek: intense public scrutiny of the Department of Water and Power monopoly, its long and failing saga to attract a top-flight general manager, and its union leader, D'Arcy, who has showered City Hall elected leaders with campaign cash.
The utility wanted a rate increase of up to 28 percent that would have hit homeowners and small businesses hard, largely to fund unspecified "renewable energy" projects that are still well down the road. Instead, the secretive DWP is right where it doesn't want to be, under a public microscope.
Villaraigosa and Greuel, who took major campaign funds from D'Arcy's union, are quietly trying to deflect criticism that they caused the city's credit downgrading this month by credit-rating service Moody's. Greuel had declared that L.A. would run out of money on May 5, only to be forced to quickly retract her claim. Villaraigosa had warned that L.A. could face bankruptcy, and days ago ordered a plan to shut government two days a week, then quickly changed his tune and insisted that things weren't nearly so bad.
The chaotic proceedings, in which the Los Angeles City Council was hardly uninvolved, set off a round of mocking newspaper editorials in other cities. The council temporarily backed away from a utility rate increase and then approved one Wednesday, April 14, which takes effect July 1.
"We have heard plenty" from angry, recession-slammed Angelenos, one in eight of whom are unemployed — a fact that has often gone unmentioned during the feud, notes City Councilman Dennis Zine.
In the past few days, former mayor Richard Riordan has told Rick Orlov of the Los Angeles Daily News that the City Council needs to create a bankruptcy plan in case City Hall's current $212 million general-fund deficit worsens; former DWP commissioner Nick Patsaouras filed a suit several days ago against the cash-rich DWP to force it to hand over $73.5 million in surplus money it promised months ago to give to the city's maxed-out general fund; and the L.A. City Council has taken steps toward enacting a police-hiring freeze and forcing the DWP to open its books.
"Yes, it's all interrelated, deeply, deeply interrelated," says City Councilman Bernard Parks, chairman of the council's Budget Committee. "That's a sobering thing."
Parks, who, as the former L.A. chief of police, oversaw a sizable budget, is one of only five City Council members widely seen as capable of grasping the vast citywide budget and complex fiscal issues. He has frequently joined with Zine to warn the rest of the City Council that the city employs thousands of workers it cannot afford. Parks and Zine have not garnered much response to their views, until recently.
Instead, the City Council and Villaraigosa have continually underestimated the severity of the economic downturn in each approved budget since 2007. Under Villaraigosa, in fact, the city's employee count has grown by more than 3,000 to roughly 49,000 government workers.
The situation has left L.A. with a worsening "structural" deficit that makes City Hall increasingly reliant on the DWP's practice of collecting more money than it spends, then sending a fat chunk of that money to the city's deficit-ridden general fund each year. Those transfers of cash, which once amounted to 5 percent of DWP annual revenues, now stand at 8 percent.
The increasing amounts act as something like a drug, making City Hall more reliant on the utility monopoly, even as Parks concedes that elected leaders have grown more and more afraid to upset D'Arcy and his aggressive union, the International Brotherhood of Electrical Workers (IBEW).
Now, in the wake of the past several weeks' controversies, and led by Jan Perry and others, the council is considering seeking voters' help at the ballot box to wrest some of the DWP's autonomy and rein in the city utility's growing role as a political kingmaker.
David Abel, publisher of the Planning Report newsletter and a longtime City Hall watcher, summed up the views of many disgusted residents by invoking the name of former city controller Laura Chick, who, though seen as a grandstander by her critics, gained a reputation for playing it straight with the public.
Abel wrote in an e-mail to L.A. Weekly: "L.A. city voters and those dependent on city services, disgusted by the mayor and DWP's 'bush league' threats, the electricity rate surcharge's lack of substance and transparency, and the theatrical dueling with City Council this past week, are understandably upset with talk of 'imminent bankruptcy' and the reality of ballooning deficits next year."
Abel continues, "Needed immediately to restore public trust — a fiscal truth-teller. Laura Chick, where are you?"
Following is a time line of the past month of events in L.A.'s fiscal crisis:
• In early March, Villaraigosa set off an intense debate by pushing for a surprisingly steep DWP hike of up to 28 percent, citing the pricey future cost of his as-yet-unformed plan to invest in some type of renewable energy.
• The mayor persuaded his political appointees on the DWP Board of Commissioners to approve the hikes.
• As public outcry grew, Villaraigosa shifted his emphasis from green energy to warn instead that unless the City Council backed his DWP hikes, the city could face bankruptcy.
• Furious at being whipsawed, the City Council exercised its considerable powers, ordering that the DWP rate-hike plan come before it for a formal vote.
• On March 23, Villaraigosa turned up the political pressure on the council, persuading former vice president Gore to appear via satellite to urge L.A. residents to embrace a special DWP surcharge — a move that backfired politically.
• With DWP General Manager David Freeman away on what appeared, at first, to be merely an ill-timed vacation, his underling Raman Raj claimed that the DWP was in poor fiscal shape and would not send the long-promised $73.5 million to the city treasury — unless the City Council approved the rate hike.
• On March 26, Miguel Santana, the city's recently hired top fiscal officer, upon whom Villaraigosa had heavily relied for cogent budget advice, left to enter an alcohol-rehab program after getting arrested for a DUI — while driving a city car.
• On March 30, in a tight vote, the City Council ignored the growing community fury and approved an immediate rate hike of 4.5 percent for residents and 5 percent to 6 percent for most businesses, laying the groundwork for three much higher utility hikes planned by Villaraigosa later.
• In a late-night pissing match on March 31, Villaraigosa's appointees on the DWP board unanimously rejected the City Council hike as insufficient, backing a slightly bigger, 5.7 percent increase. In a game of brinkmanship so strange that TV news reporters actually showed up for a utility debate, the council vetoed the DWP's slightly higher increase. At midnight, the city missed its April 1 legal deadline to enact a springtime rate increase, thus losing millions of dollars.
• On April 5, City Controller Greuel, previously criticized for getting $250,000 in campaign help from the DWP union, run by labor boss D'Arcy, made national headlines by announcing — and days later retracting — that L.A. would go broke May 5.
• On April 6, the mayor made national headlines by ordering city officials to devise a plan for shuttering city government two days a week.
• Widely slammed for that, Villaraigosa two days later announced a "surprise" turnabout: The city had taken in an unexpected $30 million in extra property- and other taxes, making a shutdown of government unnecessary.
• Greuel announced that she, too, had a new plan: auditing the DWP's books, something she has promised since 2009.
The amateur-hour feel to the past month has fueled extensive rumors and anger, and not just among the public.
Parks says it is fairly "widely assumed" among leaders inside City Hall that outgoing DWP chief Freeman, repeatedly criticized for misreading the public mood on costly green initiatives such as last year's failed solar initiative, Measure B, was told by Villaraigosa's team to overstay his vacation so the mayor's advisers could use their greater political savvy to push through the DWP rate hikes.
If that was the plan, it failed, with both Parks and Zine suggesting that Villaraigosa's handpicked advisers Beutner, Carr, Carson and Szabo share very little municipal policy expertise between them. Budget expert Jan Perry, one of few council members who stands up to Villaraigosa, has also been openly unimpressed by Szabo and others on the mayor's team, who are essentially political spokesmen.
"When the mayor said he wanted to implement a city shutdown on April 12, and he set that as the effective date, he hadn't spoken to any of us," says Zine, who put aside time between a funeral and a workshop he hosts on coping with foreclosure to explain these antics.
"The mayor created a belief, a strong belief, that the right hand and left hand do not know what they are doing. That's not how the second largest city in the nation should be run."
Carr is a local minister whom Villaraigosa hired to run his still-unproven $20 million–a-year "antigang" program. Carr quickly won a promotion to become the mayor's chief of staff, "something he knows nothing about," Zine says. Yet Carr must now somehow wrangle powerful city department heads to move in the same direction.
Former DWP commissioner Patsaouras is a fierce critic of the flashy four advisers and decries the loss of Santana, who was arrested just when the budget crisis and DWP brawl were approaching a crescendo.
"You have this piece of shit Jay Carson telling the L.A. Times that all the mayor wants is a $2.50-per-month utility charge, which was an outright lie" that dramatically understated the true hike, Patsaouras says of Carson, former spokesman for both Bill Clinton and Hillary Clinton. "Then the mayor comes back from Washington but cancels a press conference to explain himself. With the mayor and his aides giving a different reason and a different number each time, the public got outraged. The council was ready to go along with it, but then they got angry phone calls up the kazoo!"
The mayor's office calls it "ridiculous" that some question the depth of Villaraigosa's bench, noting that many among his broader team worked for Tom Bradley and Richard Riordan. Now, with the mayor's advisers looking something like a gang that can't shoot straight, Beutner's name has surfaced in speculation over Villaraigosa's possible choice to replace Freeman as chief of the DWP. If chosen, he would be the utility's fourth boss under Villaraigosa, who forced out his friend environmentalist David Nahai.
Nahai's controversial forced departure several months ago, in the wake of the mayor's major ballot-box failure on Measure B in 2009, set off widespread speculation that Nahai had displeased DWP union chief D'Arcy by failing to embrace the solar plan. That plan was a brainchild of D'Arcy's and Villaraigosa's. It would have greatly increased the size and power of D'Arcy's union.
During the current turmoil, D'Arcy actually tried to offer a compromise to end the quibbling but was ignored.
Nevertheless, "The truth is, the IBEW holds all the cards," says Parks, because its power is openly feared by elected leaders for the campaign cash it wields.
At the same time, the DWP's management team deftly uses secrecy to exert influence over L.A. ratepayers and the City Council. "The pattern for DWP management has been to come in at the very last minute and say they must have a rate increase, and withhold facts, such as hiding how much money they really have in all kinds of small pockets," says Parks.
He angrily cites findings by PA Consulting Group, whose recent report on the utility's finances shows, he says, that the DWP is sitting on a $450 million "cash-flow reserve," when for decades $150 million was considered sufficient. "The DWP is playing hide-the-ball" so it can demand rate increases, Parks says.
The prospect of mayoral insider Beutner running the DWP — and, like Nahai, lacking any experience running a public utility or big-city department — troubles some. Wall Street whiz Beutner is best known for his work advising the U.S. Treasury Department on ways to help Russian rabbit farmers find new loan sources. He co-founded Evercore Partners and served on the board of directors of the huge American Media firm, owner of the National Enquirer.
Says Patsaouras: "These people are getting the mayor into trouble. Beutner? Wall Street investment bankers go in a room, have martinis and steak and make a deal — and that is fine. But when you have public money and public agencies, there is a process, whether you like it or not."
But beyond the unease and rumors, serious economic issues remain that could imperil the city government and hurt core city services.
Economist John Husing, an expert on the recession and foreclosure crisis still gripping the Inland Empire, says Los Angeles elected leaders who are celebrating about "finding" $30 million in unexpected extra property and other taxes last week "clearly, fundamentally do not understand what this region is facing" for the next several years.
Parks agrees, saying, "That $30 million we 'found'? This is a blip. This is not a positive trend line of revenue coming to the city."
But only five City Council members are considered well-versed on the L.A. budget; besides Parks and Zine, the others are Valley representative Greig Smith, South Los Angeles and downtown representative Perry and Hollywood representative and City Council President Eric Garcetti. The lack of similarly deep budget knowledge among others on the council leaves unclear whether the City Council really intends to cut back on the size of government. So far, the city has laid off just 400, roughly, of the estimated 4,000 workers it has threatened with job losses.
And it's not clear that city leaders know how to end their chronic practice of approving permanent new costs paid for with one-time revenues or hoped-for revenues.
"We in the city have done nothing to change our practice of living from windfall to windfall," says Parks, who questions whether his colleagues can change.
Critics of how City Hall does the public's business, such as Patsaouras, say one problem is the sharp rise in city hiring under Villaraigosa. One former city fiscal analyst, who asked not to be named, says Karen Sisson, the city administrative officer who preceded Santana, "was trying her damndest to tell the mayor you cannot keep adding and adding and adding police officers. But he was obsessed. When Karen left, nobody wanted what was once a great job, because the word was out: The mayor isn't listening." The swelling payroll has been fueled not only by Villaraigosa's dogged vow to add more police, but also by dramatic growth in the political bureaucracy, including the mayor's personal staff, which has grown to 173. Riordan, by contrast, employed 114.
City Council members have funded their own huge personal staffs of 15 to 25 people per office as well, at a cost of about $1 million to $1.5 million per council member, not to mention the eight free cars and free gas each council member enjoys.
Yet as the Weekly determined in its February 2009 cover story "Los Angeles on $300,000 a Year: Why next week's City Council 'coronation' will cost you more than money," some City Council members pay little attention to what they spend.
Lieutenant-governor candidate City Councilwoman Janice Hahn, for example, is viewed by some of her colleagues as having little understanding of fiscal issues. When the San Pedro–area councilwoman was asked in 2009 how much she spends on her personal staff, she significantly underguessed, estimating her cost at $1 million. (She was in fact spending $1.32 million.)
This week, the City Council's Budget Committee began looking at different financial guesstimates — the expected city treasury revenues for the upcoming months.
But as blogger Ron Kaye noted, some on the council still behaved as if no crisis confronted them. As Kaye wrote, the Budget Committee also had on its agenda a proposal by Hollywood-area City Councilman Tom LaBonge to sell a costly Seagrave fire engine for just $1 to Los Bomberos — a nonprofit group of firefighters that, in partnership with others, helps mentor firefighter trainees and candidates.
"So maybe things aren't as bad as they look," wrote Kaye. "Or perhaps LaBonge's rose-tinted glasses have him living in a separate reality."
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