An odd legal loophole soon will play a central role in the municipal pissing contest over two mysterious L.A. Department of Water and Power “training institutes” that have secretly spent $40 million in public money. Veteran union boss Brian D'Arcy is hoping that exploiting a bit of ambiguous language will let him hide the books.

“This is a ploy to avoid being accountable.” —Ron Galperin

“D'Arcy versus Galperin” has become a much-watched war between D'Arcy, who works his magic largely behind the scenes for some 8,600 DWP employees, and L.A.'s newest political voice, city Controller Ron Galperin, who campaigned on a platform of government transparency.

Galperin wants the complete financials of the two nonprofit groups, the Joint Training Institute and the Joint Safety Institute, whose employees operate in offices at a DWP power plant in Sunland, on L.A.'s far northern edge.

The DWP already expends $127 million a year conducting in-house training of its workers, including millions on employee-safety programs. The two nonprofits, both run like secret trusts for more than a decade, spend about $4 million annually in the same overlapping areas. Their joint board, half of whose members represent D'Arcy's IBEW union and the other half of whom represent management, refuses to disclose meaningful details of the institutes' purposes or practices.

D'Arcy has fought Galperin's attempts to audit the nonprofits, and several days ago made a last-ditch effort to dampen public criticism by releasing some of their internal documents.

The documents posted online have raised even more questions.

Galperin says that the information D'Arcy's IBEW placed online is “basically a rehash of the same information we have reviewing tax returns,” such as the nonprofits' executive salaries and travel costs.

Can the books of two private organizations that are entirely funded by a public utility owned by the people of L.A. really be off-limits to the city's auditor?

D'Arcy's attorney, D. William Heine, argues that's exactly what's required by the city charter, state law and the U.S. Constitution's protection from unreasonable searches. Heine's first argument in his legal briefs, however, is that founding papers filed to create the two nonprofits years ago state that the groups' board of trustees cannot order more than one audit yearly.

Mining that loophole, the always-strategic D'Arcy headed off Galperin's planned audit when, at 12:05 a.m. on Jan. 1, as a union trustee, D'Arcy requested his own audit of the two institutes — by a hand-picked, private CPA.

D'Arcy's legal team says Galperin has no business conducting a second, and independent, audit requested by trustees who represent DWP management.

Michael Jenkins, a professor of municipal law at USC, says the audit language in the founding documents is ambiguous, and tells the Weekly “a race to audit” can create the “absurd situation” in which each party tries to file its audit request “as quickly after midnight on the 31st as they can.”

Jenkins says the union's position “is troubling because there is no particular principle being upheld here that would justify that degree of privacy.” 

Galperin and City Attorney Mike Feuer successfully pressed this week for an early hearing before Superior Court Judge James Chalfant, now set for March 18.

In his opposition brief, Feuer described D'Arcy's one-audit-per-year-only argument as “absurd,” as well as “the latest maneuver aimed at defying a basic truth: If you accept public funding, you must accept public scrutiny.”

The actual wording in the nonprofits' founding documents reads: “Either the DWP or the IBEW, or both, may at any time, but not more often than once every calendar year, require that the Trust be audited either by an independent certified public accounting firm or by the Controller of the City of Los Angeles.”

This is the second time D'Arcy has executed his deft gambit against City Hall thanks to that phrasing.

Last fall, Galperin planned to audit the two institutes after a Sept. 19 Los Angeles Times article questioned their $40 million cost and purpose. D'Arcy responded, ordering an audit of his own for 2013. The city never got a look at the books.

On Jan. 28, District Attorney Jackie Lacey's office announced it is investigating the two controversial training and safety groups.

Her move seemed to get D'Arcy's attention. Eight days later, he penned an L.A. Times op-ed that insisted he is fighting Galperin's audit merely to protect DWP union workers — and respect for the rules.

A master of flair, D'Arcy announced that former California Attorney General John Van de Kamp will serve as a “neutral party” to assist the DA's probe, whatever that may mean.

D'Arcy didn't respond to the Weekly's calls. His op-ed repeated the legal assertion that “the trusts are independent of city government.”

In a legal declaration to the court, D'Arcy noted that before this scandal erupted, the L.A. Controller's office had “made no attempt,” ever, to audit the two nonprofits, which were created years ago by the City Council — and then widely ignored.

In 2005, the Weekly reported on the city's failed oversight of the two “institutes” in its article, “Where's the DWP's $12 Million?

Since then, the two groups have spent some $29 million more.

The 2005 Weekly article described how the IBEW, pulling in political favors in Sacramento, secured a favorable opinion from then–Attorney General Bill Lockyer's office exempting the two nonprofits from a state law requiring public board meetings.

D'Arcy's attorney now is invoking Lock­yer's opinion in arguing that the trusts are not subject to eyeballing by city accountants.

“What happened after the L.A. Weekly story is that a lot of people forgot about it, unfortunately,” Galperin says. But after the Times' story in September, “A lot of people started paying attention.”

Since their conception, the two institutes have operated as black boxes. Union-appointed and management-appointed trustees, who sit on the board that controls the two nonprofits, hold board meetings in private and file tax documents so vague as to be essentially opaque.

Among those demanding total transparency from the institutes are Mayor Eric Garcetti; City Councilman Felipe Fuentes, who chairs the Energy and Environment Committee; and former DWP general manager Ron Nichols, who quit last month.

The struggle has become a flash point for political rivals, disgruntled utility customers and L.A.'s most generously compensated city workers, at the DWP, where average salaries hover above the six-figure mark.

Amid the cacophony, D'Arcy holds firm, fueling suspicion there's something to hide.

The union-commissioned 2013 audit, which IBEW released last week with D'Arcy's Times op-ed, “should dispel any doubt about how the trusts are spending their money,” he wrote, claiming it reveals that 75 percent of expenditures “fund safety and training programs provided to employees,” with 25 percent for administration.

Galperin, speaking to the Weekly an hour before IBEW released the audit by Miller Kaplan Arase LLP, referred to it as “that so-called audit” that had been “conducted by the same firm that produces the trusts' tax returns.”

After reading Miller Kaplan Arase's audit, Galperin declared, “We do not consider them to be a proper and independent auditor for this matter,” adding that their scope is nowhere near what the Controller's office will undertake.

“It's clear that they are doing this as a ploy to avoid being accountable to an independent auditor,” Galperin says of D'Arcy and his allies.

The two trusts were born within a few years of each other, in the political climate following tumultuous 1998 labor negotiations and 2,000 layoffs at the DWP. The L.A. City Council and mayors Richard Riordan and James Hahn, in their rush to appease IBEW, approved an arrangement that called for little oversight.

Fred Pickel, the city's new “ratepayer advocate,” who is a watchdog over rates charged to DWP customers, tells the Weekly that Galperin is doing the right thing because “transparency is paramount.”

“But let's not get distracted about $40 million problems in a world that might have … even billion-dollar problems,” Pickel warns. He says the DWP faces big hurdles in meeting costly alternative-energy mandates and coping with a severe drought and aging infrastructure.

In order to justify siphoning about $4 million annually from ratepayers into the nonprofits, Galperin says, the two institutes must prove that they are advancing workplace safety beyond what DWP is doing.

He has seen no such evidence. And he agrees with Pickel that greater challenges await: “It's not just about finding how the monies were spent by these two trusts but now the larger issue — about bringing necessary reforms to the DWP.”

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