($2.5 Billion) MEDI-CAL FRAUD.

The Los Angeles Times’ Virginia Ellis reported on December 19, 1999 that the FBI estimated fraudulent spending of Medi-Cal funds cost taxpayers $1 billion. The system was “rife with fraud,” reaching 70 percent of billings for crutches, adult diapers, wheelchairs and other medical equipment.

On December 26, 2002, The Times, in an article by Ms. Ellis and Tim Reiterman, reported that Medi-Cal fraud costs taxpayers about $2.5 billion a year. They listed specific examples of theft and government reactions that have resulted in criminal charges filed against about 700 people and companies in the last few years, including almost $100 million in restitution as a result of state and federal prosecutions.

While state health officials believe civil enforcement actions have saved hundreds of millions more, the newspaper reported the state’s $25 billion-a-year Medi-Cal program “is so enormous, and the opportunities for fraud so widespread, that few think the efforts so far have done much more than hold the line.” The article quoted James Wedick, head of the FBI’s white-collar crime unit in Sacramento: “Health-care crime is rampant in California. Even though our efforts have increased and we’re getting good at it, I am still convinced there is as much fraud as ever.”

Some experts, The Times noted, figure 10 percent ($2.5 billion) of the annual Medi-Cal budget – half of it state general fund tax dollars – is stolen by doctors, dentists, pharmacists and others. For example, Medi-Cal was charged for perinatal services to women who had already undergone abortions; a dentist charged for filling teeth that had been extracted; a suspended doctor billed for hundreds of nuclear brain scans without proper equipment and expertise. A podiatrist, who used $24 generic shoe inserts, billed the state for $250 custom-molded supports.

The article noted a black market among body builders for Serostim, a human growth hormone used by AIDS sufferers. A one-month prescription costs almost $7,000. A San Diego County Grand Jury indictment in 2001 alleged that Medi-Cal was bilked for $3.5 million by a statewide ring using stolen beneficiary numbers and physician identities to create phony prescriptions, then peddling the drug at gyms and spas. (The San Diego Union-Tribune, on January 1, 2002, reported that nine persons used more than 500 fraudulent prescriptions at more than 75 pharmacies to defraud the Medi-Cal system.)

Cal-Tax searched news media reports for evidence of Medi-Cal fraud over the past two years and found that fraudulent activities apparently continue unabated and are much more pervasive than once thought. For example:

Owners of a Glendale medical laboratory pleaded guilty to billing the Medi-Cal program for $19 million worth of bogus blood tests, the Los Angeles Times reported on October 3, 2002.

Leaders of a criminal fraud ring with suspected ties to Russian organized crime were ordered to pay $1.6 million in connection with a scam that bilked the Medi-Cal program, (Los Angeles) City News Service reported April 3, 2002.

The state Bureau of Audits on December 12, 2002 released its annual report on the state’s Medi-Cal purchasing program, concluding millions of tax dollars have been wasted. The Department of Health Services’ “cost control procedures have been ineffective in reining in spending for items with no maximum allowable prices” for supplies such as hearing aids, canes, crutches, wheelchairs, bandages, diabetic tests, gloves and waterproof sheets, Auditor Elaine Howle concluded. The department is supposed to be surveying the market to update prices every 60 days and setting maximum prices based on lowest prices. It has delayed price updates for an average of 15.5 years, the audit found. DHS Director Diana Bonta responded to the audit, concurring savings could be achieved and saying steps are being taken. Her November 25 letter said a new contracting process and significant changes in the benefit administration will save taxpayers some $36 million a year, half of it state general fund dollars, when implemented. More than $356 million in state and federal money is spent annually on medical supplies for Medi-Cal patients. The state auditor replied that the department “overstates its efforts” to correct problems.

($500 Million) WELFARE FRAUD.

The Los Angeles County Grand Jury reported that welfare fraud may be costing taxpayers as much as $500 million a year. (Los Angeles Times, July 1, 1999.)

($280 Million) UNEMPLOYMENT INSURANCE FRAUD.

The Sacramento Bee (July 31, 2003) reported skyrocketing unemployment insurance claim fraud in 2002, totaling $280 million. That’s almost a fourfold increase since 2000, the newspaper said. There has been a significant increase in fraudulent claims stemming from stolen or compromised personnel records. The Bee, based on internal memos and information from Employment Development Department staffers, reported that there are key weaknesses in the state’s benefit system. For example, the department issues control numbers and benefits to people who file claims under a Social Security number that belongs to another person, living or dead. Claimants also can file for benefits over the phone or online, making it easier to falsify their identities. Criminals have been successful in the creation of fake employers, and the department depends on employers to report fraudulent claims. According to The Bee, insiders at the department say a search for quick fixes has resulted in “superficial seals on gaping holes.”

The Bee quoted EDD spokesperson Loree Levy as saying the department’s primary mission is to provide quick service to those out of work. She also said the department is spending $80 million to update its 30-year-old computer system so officials can cross-check claims with a state directory of newly hired employees.

Elsewhere on the UI front: Orange County Auditor Peter Hughes has concluded that the county may have to refund some unemployment insurance money back to state and federal agencies because $3.2 million was spent on things unrelated to unemployment expenses since 1998. For example, the Orange County Register reported (May 29, 2003) that the county’s human resources department used UI funds to pay for “enlightened leadership” management training.

False claims to the state for unemployment insurance have ripped off an estimated $16 million over the last five years, according to investigators. The Fresno Bee reported (May 3, 2003) that state and federal investigators found that most of the checks, totaling millions of dollars, went to about a dozen people. On May 2, six defendants from San Joaquin appeared in federal court in Fresno on charges of conspiracy and mail fraud. It is part of an ongoing investigation. The fraudulent payments have been uncovered since a Fresno County sheriff’s deputy, making a routine traffic stop early last year, noticed the driver had keys to several hundred post office boxes throughout the Central Valley.

($60 Million) VALLEJO SCHOOLS BAILOUT.

A $60 million state bailout to the seriously mismanaged Vallejo schools (SB 1190, Chesbro) cleared the Senate on May 18 on a party-line 24-12 vote. The bill also provides the state will take over the troubled district. Republicans, who opposed the bill, argued that it should contain reforms to prevent future state bailouts when local school boards give away the store to employee unions. Such reforms are contained in AB 2756 (Daucher).

Senator Wes Chesbro, who represents the district, argued that “I hope we can agree that we cannot punish the children of Vallejo for the mistakes of adults.”

Because of the Republican call for reform, Mr. Chesbro removed the urgency clause from the bill, reducing the vote requirement from two-thirds to a majority. According to the Vallejo Times-Herald, the school district needs the cash flow now, not next January when non-urgency bills take effect. As a result, the urgency clause will have to be added back in the Assembly, giving Republicans leverage to push for reform.

In a related development, the Times-Herald reported on May 19 that Vallejo district Superintendent Gladys Phillips-Evans, who is on administrative leave but still drawing her salary, was lambasted in a 231-page audit report for failing to spot problems in the InglewoodSchool District, where she was head of personnel from 1992 to 1995. During this period, a custodian supervisor who Ms. Phillips-Evans oversaw, embezzled $441,000 while the district teetered on insolvency. At the time, one of the authors of the audit, Leonard Faller, said, “The incompetence level is hard to fathom. It would have to take incompetence beyond belief.”

($30 to $100 Million) OAKLAND SCHOOLS.

A February 9, 2000 column by Phillip Matier and Andrew Ross of the San Francisco Chronicle cited an audit of the Oakland Unified School District that found, among other irregularities and mismanagement, 400 teachers who were on the payroll but were not included in the district’s budget. The state audit, according to the San Jose Mercury News in a February 2, 2000 report by Dana Hull and Renee Koury, included 1,000 recommendations, including fiscal management. Another Chronicle article, in 2000, cited a state audit that discovered suspiciously high attendance figures in Oakland schools that could have padded state funding by $10 million.

One would think that such scathing assessments of Oakland schools would have prompted improvements. Yet two years later the district’s fiscal performance is still in shambles. The Oakland Tribune on November 26, 2002 reported in a story by Alex Katz that there had been “gross overspending” by the district, leaving it with a $32 million deficit in 2001. County officials, according to the story, said the deficit in the current year could be “as high as $50 million.” The Chronicle (December 8, 2002) reported that Oakland’s 48,000-student district will ask the state for an estimated $100 million bailout. Among the district’s woes, the newspaper reported, was a 4,300-student drop in enrollment as students switched to charter schools, a 24 percent pay raise for teachers and an antiquated budgeting system that miscalculated overspending in nearly every department. The district failed to account for replacing 700 rookie teachers with credentialed teachers who are paid $8,000 more per year, according to the report by Meredith May.

S.F. SCHOOLS “FLUNKING PAYROLL”.

That was the San Francisco Examiner’s February 18, 2002 headline on a story about Proposition F on the March 5 ballot, a measure to create an oversight committee for spending San Francisco school construction bond money. Angie Marshall, in the summer of 2000, applied for a speech pathologist job with the district, then turned it down to take a better offer in San Bruno. Then, in September 2000, she got a paycheck from the S.F. district. Another came in October. November’s check included a raise. The three checks together exceeded $13,500. She sent them back, informing the district that she had never worked for it. Then, in September 2001, she got another check, with a bonus, despite her repeated phone calls. Ms. Marshall also wondered why the checks were sent to an old address in Spokane, Washington. She said, “I know that what happened to me is most likely indicative of a much larger problem. I have no clue what’s going on. I’m just glad I didn’t accept a job, because if I did, maybe I wouldn’t be getting a paycheck.” The Examiner said district officials refer to Ms. Marshall as an isolated incident and insist that no one else was paid accidentally. The district’s finances have been the subject of more than one newspaper report of questionable – if not illegal – spending practices. For example, it has been reported that the district didn’t know how many teachers were on its payroll. Also, an independent audit found the district misspent $140 million in bond money meant for school construction with most of the money going into paychecks for district staff. For reaction to the Marshall case, the newspaper quoted Kent Mitchell, teachers’ union president: “It’s disturbing, but not shocking. The number of payroll problems is much less than it used to be, but that doesn’t excuse even one. Doing payroll is not exactly rocket science.”

($185 Million) LOS ANGELES CITY SCHOOLS.

The Los Angeles Unified School District has leased a 29-story downtown office building for five years for the district’s administrative headquarters, even though the building has earned the “lemon award” twice from a downtown business group, the Los Angeles Daily News reported in October 2001.

Checking further reports, apparently things are getting worse with that expensive admin building. After spending $184.2 million to buy and renovate the structure, the district is spending $1.2 million a year to lease 1,166 parking spaces at three locations, the Daily News reported on November 27, 2002. Labor contracts ban the district from charging their employees to park, so the district must come up with the free spaces, said School Board President Caprice Young.

STATE STOPS AUDITS OF SCHOOL ATTENDANCE.

Bowing to pressure from school districts, the Davis administration said it was scrapping a program to audit school attendance. The action likely means that taxpayers will be paying for students not attending schools. (The Sacramento Bee, December 4, 2001.)

($10 Million) TURNING POINT ACADEMY.

The state spent more than $10 million to create and run (with a staff of 34) a military-style academy for troubled youths. A pet project of the governor, it opened in March 2001. As of November, it had eight students, which amounts to $500,000 per student. (Sacramento Bee, November 25, 2001.) The academy’s budget fell victim to the 2002 budget crunch.

($60 Million) S.F. SCHOOL SPENDING.

When voters approved bonds and special property taxes to build and fix San Francisco school buildings, they expected the money to be used for that purpose. San Francisco Unified, since 1989, spent $60 million from bond funds on operations, not buildings. (San Francisco Chronicle, November 21, December 2 and 5, 2001.)

($4 Million) HARASSED WHISTLE-BLOWER WINS.

A jury’s $4 million award of taxpayer money has been affirmed by a Sacramento County Superior Court judge for a state Department of Education whistle-blower, James Lindberg. The jury agreed with the veteran department employee’s claim that he was harassed and demoted for telling authorities about fraud in the spending of $11 million in federal funds for adult citizenship classes. Although tossing out the jury’s punitive damages award against then-Superintendent of Public Instruction Delaine Eastin, calling it based on “more speculation than the law allows,” Judge Brian Van Camp wrote that from testimony the jury could have believed Ms. Eastin “knew of the fraud perpetrated upon the state” and “either was not concerned about it or had political motivation not to curtail it sooner.” According to testimony at the trial, Ms. Eastin was pressured by Latino state legislators to fund community-based organizations to conduct the classes. The story was in The Sacramento Bee (February 11, 2003).

($175 Million) BELMONT LEARNING CENTER.

An earthquake fault running under Los Angeles Unified’s half-finished Belmont Learning Center may doom the often-ridiculed most-expensive high school in America. After years of controversy over the decision to build on an old oil field near downtown – with dangerous gases seeping from the ground – the school board voted to abandon the project. New Superintendent Roy Romer resurrected it in 2000. Now, after $175 million over 14 years, news of the seismic safety problem caused Mr. Romer to announce December 4 that the campus could not be completed as designed. The Los Angeles Times and Los Angeles Daily News reported on the apparent demise of the Belmont project, which has been described as the most mismanaged school construction project in California history. In a December 7 follow-up, the Daily News reported that school district officials ignored repeated warnings over the last seven years that the site could pose serious risks to students and faculty during an earthquake. A year and a half before ground was broken on the project, the school district’s own environmental consultant warned of “significant” seismic conditions at the site, the newspaper reported.

($9 Million) MILLIONS SPENT TO LURE TEACHERS.

With financially strapped school districts giving out thousands of layoff notices, does it make sense for the state to spend more than $9 million this year operating six teacher recruitment centers and holding job fairs? Since 2000-01, the state has spent more than $330 million on programs designed to increase the number of teachers. The $9 million would keep 200 young teachers on district payrolls. The report by columnist Daniel Weintraub was in The Sacramento Bee (March 18).

($200 Million) REPORT HITS CSU SOFTWARE CONTRACT.

In yet another example of expensive government problems with efforts to upgrade or install computer software, a poorly conceived California State University software contract is exceeding projected costs by $200 million. The Bureau of State Audits also said that a high-ranking CSU official was being paid as a consultant for the software firm that won the contract. The $662 million contract was poorly conceived from the outset, the bureau’s report said. Further, there are serious problems in the software that threaten the confidentiality of student information. According to Sacramento Bee columnist Daniel Weintraub, the software project “was never properly justified by university administrators, might not have been necessary and may not be accomplishing much of what the university set out to achieve.” The audit was released by State Auditor Elaine Howle (March 11, 2003).

MERCED CAMPUS BOONDOGGLE?

The University of California’s tenth general purpose campus, UC Merced, is a non-existent campus with a $7.8 million payroll. The campus, not slated to open until the fall of 2004, already has cost taxpayers a quarter of a billion dollars during 15 years of planning, and no building has been constructed. A $253,599-a-year chancellor has been hired and faculty are being recruited. Meanwhile, students attending other campuses of the university are calling for the campus to be deferred, calling the expenditure unwarranted at a time that student fees are skyrocketing due to the budget crunch. The story was in the San Francisco Chronicle (March 10, 2003).

CATEGORICALS: AN EDUCATION LABYRINTH OF DOLLARS.

The Legislature’s audit committee ordered a formal investigation of $11 billion in state education funding of categorical programs. The probe was prompted by a February 2-7 series by Deb Kollars in The Sacramento Bee that raised numerous questions about how the money is used and by whom. Categorical programs range from Special Education to Gifted and Talented Education. Senator Tom McClintock: “This is the big one. This is $11 billion of expenditures, and we really aren’t quite sure where they’re going.” The 100 programs soak up one-third of the state education budget. State Auditor Elaine Howle said the $185,500 audit will be finished by late summer. The story was in The Bee (March 13, 2003).

($13 Million) EXPENSIVE LEGAL BATTLE OVER SCHOOL CONDITIONS.

The state of California has spent $13 million in the last three years to fight a lawsuit that claims public school conditions are substandard. In an April 18, 2003 New York Times article, state Senator John Vasconcellos said, “To spend $13 million on lawyers from Los Angeles instead of on education is really a crime.” And, the newspaper reported, that figure is likely to increase. Williams v. State of California is a class-action suit filed by civil rights groups, and others, on behalf of school children. It contends the state allows students to attend poorly maintained schools, including unsanitary restrooms, with untrained teachers and inadequate resources (students having to share books). It focuses on 46 schools, where students are disproportionately non-white and many are learning English as a second language. According to the newspaper, the suit puts Governor Gray Davis in the awkward position of announcing state initiatives to improve education while his lawyers are arguing that many problems are not the state’s responsibility and should be dealt with by local districts.

HEFTY PAY RAISE FOR UC OFFICIAL.

The San Francisco Chronicle (June 19, 2003) slammed the University of California’s regents for approving a “generous raise” for a top official while the system is so financially stretched that it has to raise student fees. Senior Vice President Joseph Mullinix, who handles business and finance, received the 27 percent increase on May 1, after he received a competing offer from the University of Michigan. Thus Mr. Mullinix ‘s pay goes from $291,900 to $370,000, which exceeds the UC president’s salary of $361,400. The UC policy of handing out raises to keep key administrators from being lured away with better deals was articulated in a December 2002 letter from President Richard Atkinson. He said increases for senior administrators would be inappropriate because of budget problems – unless there was a firm job offer from elsewhere. He figured that it would cost UC more than just a talented administrator, but the costs of searching for another and possibly having to pay a replacement even more. Claudia Horning, leader of the UC clerical union, told the newspaper: “It is a crime against the taxpayers of the state. It is an insult to the students and to everybody who works for the university. They are managing it as though it is like Enron.”

($342,000) FIRED L.A. SCHOOLS LAWYER GETS SEVERANCE DEAL.

Los Angeles Unified School District is obligated to a severance package worth up to $342,000 for its fired chief counsel, the Los Angeles Daily News reported June 10, 2003. District superintendent Ray Romer, decided Hal Kwalwasser, his top counsel, had to go “for the good of the institution.” Mr. Kwalwasser, who was a consultant for Mr. Romer when he ran for governor of Colorado in 1994, had been under criticism for using outside legal counsel. His office expenditures jumped from $20 million in 2000 to $36 million in 2002.

($389,000) OAKLAND SCHOOLS SEVERANCE PAY.

While the state provides a $100 million bailout for Oakland schools, ousted superintendent Dennis Chaconas received 18 months of severance pay – or $389,000, the San Francisco Chronicle reported June 4, 2003. The severance pay was written into his contract, so the district had no choice, said Rick Miller, from the office of state Superintendent of Public Instruction Jack O’Connell. Mr. Chaconas agreed to leave after a brief telephone conversation with Mr. O’Connell. The Chronicle’s Phillip Matier and Andrew Ross questioned whether Mr. Chaconas might have been fired for cause, or at least be bought out for less, since the district has such severe budgetary problems. School Board President Greg Hodge, a Chaconas supporter, said there would have been a “long and messy” fight. It was better to let him leave “with his head up.” The newspaper quoted state and county officials as saying the severance deal was pretty much standard in superintendent contracts. When the state Senate on April 24 approved legislation to bail out the district with $100 million in state money, Senator Don Perata said Oakland’s mess was not a result of fraud or malfeasance – no criminal conduct is under investigation. He said a new school board and administration, in its zeal to turn around a chronic under-achieving system, “lost sight of a fundamental issue: They have to pay for everything they do. There is no excuse.”

($36 Million) REPORT: FUNDING PLOY ADMITTED.

The Orange County Register, which in December 2002 exposed community college classes for high school athletes that were no more than team practices if they met at all, reported that 37 of 72 districts admitted illegally claiming state funding through improper enrollments. The Register based its June 12, 2003 article on a review released by the state community college chancellor’s office that high school students represented 5 percent of the total enrollment at 108 community colleges in 2001-02, costing taxpayers up to $36 million in illegal enrollment. The Department of Finance’s Anita Gore said the report, while confirming the problem, doesn’t quantify it. She said the governor would ask the Legislature to approve a formal audit of the colleges.

($175 Million) BELMONT LIVES.

Like a cat with many lives, the poster child for waste in the Los Angeles Unified School District is once again alive. The half-built Belmont Learning Center should be resurrected, at least in a modified manner, according to district Superintendent Roy Romer. The Los Angeles Daily News (May 21, 2003) reported that Mr. Romer has reversed himself and now supports a 2,100-seat high school, along with a park, on the 35-acre site near downtown. The district board voted 4-3 on May 22 to go along with their superintendent, approving a $111 million plan that demolishes two school buildings directly on the earthquake fault line that, along with toxic gases from the oil and gas field that the site once was, caused abandonment of the half-finished high school. More than $160 million has already been spent on what is considered the most expensive high school in America. It was being revived when the earthquake fault was reported, seemingly dooming the project for good. But now Mr. Romer, five months after committing to abandoning the project, wants to pursue the smaller school to show the community that the district can achieve. He said the district will “require every step of the way that this meets the safety standards” of state toxic substance watchdogs. In the Los Angeles Times (May 23), Mr. Romer said the project will be completed in four years. “This is over the hump. This is going to happen.” The Times reports that $175 million has been spent on Belmont over the past six years, and current district figures would indicate that for $286 million, the district should be able to build two high schools and a middle school.

($3.4 Million) EDUCATION FALSE-CLAIMS SETTLEMENT.

Mandated Cost Systems, Inc., of Rancho Cordova has agreed to pay $3.4 million to settle a whistle-blower lawsuit that alleged the company, which contracts with hundreds of school districts, routinely filed false claims to get more money from the state. The whistle-blower, Chris Marquez, got $884,000 of the settlement, The Sacramento Bee reported on May 21, 2003. In the settlement filed April 2 in Sacramento County Superior Court, the company denied violating the state’s False Claims Act. However, Senior Assistant Attorney General Christopher Ames said: “They paid $3.4 million. That speaks volumes.”

MISUSING SCHOOL CONSTRUCTION MONEY?

Building schools, or rather, the lack of school construction, should be a sore subject by now in the Santa Ana Unified School District. Three years ago, voters in the district approved a $145 million bond to build schools. The Los Angeles Times (May 13) reported that the district has yet to build a campus with that bond money. Aggravating matters, the district borrowed $15 million from its apparently plush construction fund to cover a shortfall in its operations budget. The newspaper noted that the borrowed cash wasn’t from the voter-passed bond, but from a $60 million legal settlement with the city of Tustin, based on a federal pledge of land to local schools from the former El Toro Marine Corps Air Station.

BOULDER CREEK SCHOOL CLOSURE.

The San Lorenzo Valley Unified School District on April 8 decided to close a relatively new elementary school and keep open an older one needing $3.5 million in repairs, the Santa Cruz Sentinel reported on April 9, 2003.

WASTE IN SCHOOL BOND $ IN L.A.

According to an inspector general’s report obtained by the Los Angeles Daily News on April 19, 2003, the Los Angeles Unified School District paid enormous sums of school bond dollars for overhead. The report (which was obtained from a source after several district officials refused to release it) found that the district contracted with real estate consultants at “absurd” rates without competitive bidding or any performance evaluation standards. For example, one invoice charged $3,000 for 12 hours spent at a chamber meeting; another charged $1,440 for 4.8 hours spent at a school board meeting.

($1.3 Billion) Workers Comp Fraud: How to fix It.

According to the Orange County Register (March 7, 2004), state officials estimate more than $1.3 billion of fraudulent workers’ compensation claims are filed each year in California. However, cases worth less than $55 million, representing only 4 percent of the estimated problem, were involved in fraud charges filed by prosecutors last year, the paper reported. Insurance Commissioner John Garamendi said failure to police fraud in the system is fueling outrage. He blames a shortage of resources to combat the problem, a lack of support from private insurers, which he says are the first line of defense against fraud, and a lack of standards that allow legal abuses of the system. According to The Register, while concerns of fraud are growing, there were fewer arrests last year (366) than there were five years ago (456).

($242 Million) WORKERS’ COMP COSTS HIT RECORD HIGH.

Los Angeles County’s workers’ compensation insurance costs hit an all-time high of $242 million in 2001, a 65 percent increase in five years. Not one case of fraud had been prosecuted in recent years. (Los Angeles Daily News, January 10, 2001.) Recent reports indicate that authorities have begun cracking down on fraud in this area.

($49 Million) MTA WORKERS’ COMP FRAUD.

Los Angeles Metropolitan Transportation Authority officials have started trying to look into the question of fraudulent workers’ compensation claims. During the past five years, MTA’s workers’ comp insurance costs have climbed 51 percent, and possibly as high as $49 million a year. (Los Angeles Daily News, November 4, 2001.) The Daily News reported on May 5, 2002 that the district attorney had beefed up the workers’ comp fraud investigative force by hiring two additional prosecutors.

($1 Billion) WORKERS’ COMP COSTS L.A. COUNTY GOVERNMENTS.

Skyrocketing local government workers’ compensation costs are crippling the economy, the Los Angeles Daily News reported April 13. The paper surveyed a cross-section of officials and employers, including Timothy Buresh, chief operating officer for the Los Angeles Unified School District. He said, “Just in Los Angeles County alone, government agencies are wasting more than $1 billion a year on workers’ compensation. LAUSD is heading toward $200 million a year. We should never be over $100 million a year. This has a huge, profound effect.” How much of an impact? “… workers’ compensation is probably costing us in excess of 1,000 teachers, plus their classrooms; 1,000 police and sheriff’s deputies; 1,000 firemen, their trucks and apparatus, and 125 new bus routes this year alone. That’s the cost of workers’ compensation waste, fraud and abuse at the government level.”

FAILURE TO CURB INJURED WORKER COSTS.

Soaring workers’ compensation costs have nearly doubled in the last five years in the city and county of Los Angeles. Combined expenses grew nearly 20 percent in a year to total $430 million. In a follow-up to a year-old report detailing the problem, costs were found to continue to grow despite accelerated efforts to investigate and prosecute fraud, improve workplace safety, screen prospective employees and hire risk management specialists. It was reported that a crackdown on fraud began in 2002 and two sheriff’s deputies were arrested, the first since 1987 of a county employee on workers’ comp fraud charges. The story was in the Los Angeles Daily News (January 11, 2003).

DISABILITY STATUS BOOSTS TOP CHP OFFICERS’ PENSIONS.

The Sacramento Bee, in a package of investigative articles published September 10, reported that the vast majority of retired high-ranking California Highway Patrol officers – including the commissioner – have pursued workers’ compensation claims. Fifty-five of the 65 high-ranking officers who have retired since 2000 have sought workers’ comp settlements within two years of retiring, The Bee reported. These claims usually form the basis for disability retirement. When they gain disability retirement status, they also don’t have to pay taxes on half their retirement pay, and pensions for many amount to at least 90 percent of salary. It was noted that rank-and-file patrol officers complain that actions by chiefs and captains set a bad example. The Bee reported that the CHP has the highest rate of disability retirements in the state with nearly 70 percent of retirees getting special tax and medical benefits. These benefits cost taxpayers about $75 million in the 2002-03 fiscal year, the paper reported. The Bee also reported that CHP officers, after retiring on disability, wind up in other jobs as a result of their law enforcement backgrounds. A CHP officer who retired with stress disability, for example, has been hired to head up security at a major airport, a job that many consider to be extremely stressful in the wake of 9/11, The Bee reported.

SAN DIEGO: COLOSSAL FINANCIAL CRISIS.

San Diego’s financial woes are colossal in scope and largely of its own making, according to the Los Angeles Times (September 1, 2004) in a lengthy article headlined: “Fall From Frugality Puts San Diego on Fiscal Brink.” The article details San Diego’s problem, including underfunding of its public employee pension program by $1.157 billion, noting that the City Council sweetened pension benefits, then watched the stock market crash and leave the pension fund on hard times. “San Diego is in a real mess,” said Scott Barnett, former leader of the San Diego County Taxpayers Association. “All the bad financial news is coming together at the same time, and the city is facing a load of hurt.” This story, with regard to public employee pension largesse, has been repeated in cities and counties around the state.

SOLANO COUNTY RETIREMENT DEBT HIGHEST IN HISTORY.

Retirement goodies provided Solano County bureaucrats that surpassed those given in other counties have pushed Solano County’s retirement debt to the highest level in history, the Fairfield Daily Republic reported March 9, 2004. County supervisors are considering a $160 million bond sale to pay the county’s debt to the California Public Retirement System.

The big retirement bonanza approved two years ago gives most county employees 2.7 percent in pay for every year they work when they retire at 55 (a 30-year employee could retire at 71 percent of current pay and retire at 55).

According to the paper, most comparable counties offer only 2 percent at 55. Supervisor Duane Kromm, who voted for the benefit, said, “Frankly, I regretted it (the vote) since, because of the cost to the county.” Art Grubel, executive director of the local SEIU (employee union) defended the retirement program.

DISABILITY PENSIONS.

The Los Angeles County retirement board granted work-connected disability pensions to 53 percent of 1,034 retiring public safety employees in the past three years. That contrasts with 20 percent of retiring Los Angeles city police and firefighters receiving disability pensions. A disability pension provides a higher percentage of salary, with half of it tax-free. Surviving spouses get 100 percent of a disability pension, not 60 percent under routine pensions. (Los Angeles Daily News, May 9, 2000.)

BIGGER PENSIONS LURE MORE COPS.

Sacramento is facing an exodus of police officers lured into retirement by pensions that may be too good to refuse. How about 90 percent of final-year salary for those with 30 years of service and past 50th birthdays? The city plans a $500,000 marketing campaign to increase the number of cadet applicants. (Sacramento Bee, March 20, 2002.)

PENSION COSTS SOAR.

According to the Los Angeles Times (February 2, 2003), some cities in Ventura County are expecting rising employer (taxpayer) contributions to pension funds because the stock market plunged and hammered pension fund investments. Unable to sustain pumped-up pension benefits approved in recent years, Oxnard, Port Hueneme, Simi Valley and Santa Paula are expecting employer contribution rates to rise as high as 35 percent of payroll.

MOST EXPENSIVE STATE CONVICT?

According to the Los Angeles Times (May 5, 2003), the state’s most expensive prison inmate may be 34-year-old Steven Martinez. If he lives another 30 years, the bill for his needs, as a quadriplegic, will amount to $8 million or more. He was serving a life term for a rape and assault conviction in 1998. He was stabbed by other inmates two years ago, leaving him paralyzed. Quoting state prison officials, the newspaper reported that his hospital cell in the high-security Corcoran prison amounts to $730 a day – not counting medical and drug expenses, as well as his guards’ salaries. A bedsore last year required surgery and six months in a private rehabilitation center, costing $620,139, including about half for two guards who watched him around the clock. The Times story dramatized a growing problem with the state’s aging prison population, as well as the 120 inmates who are paralyzed or missing limbs and require special care. Many of these people should be released, according to Senate President Pro Tem John Burton. “What are these guys going to do? Run you over with their wheelchairs?” (Editor’s Note: The state’s most expensive convict to date probably was the recipient of a transplanted heart. His medical bills amounted to about $2 million over a period of about 10 months before he died in late 2002.

PUBLIC PENSION SYSTEM NEEDS MORE TAX DOLLARS.

According to Sacramento Bee columnist Daniel Weintraub (May 8, 2003), bad news coming out of the California Public Employees Retirement System – the nation’s largest pension fund – is about to get worse. He reported that CalPERS has just completed annual calculations to determine how much the state must pay as the employer’s share of the retirement fund. Because of fund losses in the stock market and a package of boosted benefits, the system now needs a record amount – more than $3 billion – from taxpayers in the fiscal year starting July 1. That’s more than double the employer’s contribution in the fiscal year ending June 30. Normally, Mr. Weintraub wrote, the system makes up for a down stock market by using reserves, but the reserves are being depleted by enhanced benefit increases. “Next year we will be paying about 15 percent of payroll to finance the pensions for most state workers, double what we paid this year and the highest in 16 years. For officers in the California Highway Patrol, the taxpayers will be contributing about 33 cents to the retirement fund for every dollar paid in salaries, the highest rate in 25 years.”

CITIES BACK AWAY FROM OPPOSING COPS PENSION HIKE.

In an April 15, 2003 column, Daniel Weintraub of The Sacramento Bee says the state’s law enforcement unions hold the Legislature in a “death grip.” Their campaign endorsements are of immense value, and when they go for a bill to sweeten their pensions, it usually passes. Now it is reported that the League of California Cities, which once opposed SB 100 (Dunn), giving as much as 100 percent of highest salary to law enforcement pensions, has gone neutral on the bill. Is it mere coincidence that local government is counting on the clout of law enforcement unions to help make it easier to raise taxes? Mr. Weintraub thinks not, concluding: “So now the law enforcement unions are not only writing the bills that increase their benefits and pressuring state lawmakers to approve them, they are also leaning on local officials to refrain from opposing these measures. This takes political arrogance to new heights.”

PENSION “TRAIN WRECK” IN SAN DIEGO.

A report by the actuary for the San Diego City Employees Retirement System indicates that the system is far worse off than previously believed. It could have a deficit exceeding $2 billion by 2009, according to the February 28 report, which surfaced only recently through a lawsuit, reported the San Diego Union-Tribune (May 10). While much of the problem is blamed on the City Council’s alleged penchant for low-balling its employer contribution to the fund, contributing factors are the declining stock market and benefit increases that were made without accounting for their impact on the pension trust, the newspaper reported. Michael Conger, attorney for retired city workers who accuse the city of deliberately under-funding the pension trust, provided a copy of the report to the Union-Tribune and said, “Their actuary is telling them that unless you stop this train wreck, our $720 million debt that you have today is going to grow to (more than) $2 billion.” The council was reported to be considering whether to seek pension obligation bonds.

MORE PUBLIC PENSION WOES.

Tales of woe continue to flow from local governments trying to make ends meet while giving generous retirement benefits. To wit:

Orange County might have to sell bonds to cover a $734 million pension funding gap that has resulted from declining value of fund investments and generous retirement benefits for public employees, the Los Angeles Times reported May 30, 2003. The county’s pension board set the stage for the problem in December 2001, voting to boost benefits for public safety members so they could retire at age 50 with 90 percent of their last year of pay for life if they have 30 years of service. The Orange County system board is scheduled to consider a $734 million bond to provide the employer (taxpayer) contributions to the fund that has resulted from the added benefits and three years of investment losses. The fund is now $4.2 billion. The county grand jury in April criticized county officials for not thoroughly analyzing the impact of an extra $75 million in benefits, including the public safety retirement, a 2 percent bonus program and the merging of sick leave with vacation time. The jury wrote: “Salary and employee benefit increases have been generously distributed with little regard to impacts on county budgets or taxpayer interests.” (Editor’s note: Orange County’s pension problems are typical of what is occurring in the state. For additional coverage of this important issue, see Cal-Tax Online: http://www.caltax.org/PublicPensions.htm)

According to the Santa Cruz Sentinel (June 9, 2003), the city of Santa Cruz, which on May 27 finalized a pension increase for police, expects to pay $4.4 million more for retirement over the next two years. In Santa Cruz County, bigger pensions for sheriff’s deputies will mean a nearly $1 million increase in county (taxpayer) costs next year. This is in addition to the $5 million more in pension costs the county is shouldering because of the stock market decline.

The Riverside Press Enterprise (June 1) reported that Riverside County expects to pay $48 million for the county’s pension obligations this fiscal year. The cost could climb to $142 million by 2004-05. Riverside County Supervisor Jim Venable, noting that dozens of cities and counties are searching for ways to pay for increased pension benefits, said the city of Colton may propose a tax increase because pension costs have increased $3.2 million above forecast for 2004-05. Rialto voters on June 3 approved a utility tax that will help pay its higher pension costs. And San Bernardino County’s pension costs have gone from zero to $67.8 million this fiscal year. A budget analyst for San Bernardino County, Gary McBride, said, “This is a huge driving concern that all local governments are going to be concerned with in future years. The dollars are huge.”

In San Francisco, the Chronicle quoted John Russo, Oakland city attorney and president of the League of California Cities, as suggesting that the next big state crisis will be over pensions. The newspaper (June 8) reported that a ballot measure pushed last year by police and firefighter unions, bringing their retirement rates in line with what the state provides, will cost the city $28 million this year.

PENSION COSTS SQUEEZE LOCALS.

Add counties of Kern and Marin to the list of local governments feeling the squeeze of paying for public pensions. In Bakersfield on April 29, county supervisors, blaming the struggling economy’s impact on pension fund investments, agreed to issue $285 million in bonds to pay off what the Californian called a skyrocketing retirement debt. In Marin, the Independent Journal reported May 1 that pension debt will grow to more than $110 million by the end of the year, and county supervisors decided to issue that much in 24-year bonds. It will cost the county up to $560,000 to service the debt, which was blamed on the economy and benefit increases.

FIREFIGHTERS OVERTIME PLAGUES DISTRICT.

Enticed by richer pensions, so many older firefighters retired last summer that the Contra Costa Fire District overspent its overtime budget and had trouble staffing its 30 stations, the Contra Costa Times reported January 30, 2003. With annual pensions going up as much as $20,000, more than 10 percent of the firefighting force retired, and the district was unable to recruit enough replacements to ward off a wave of overtime costs.

SDI WASTES MILLIONS THROUGH ERRORS, ABUSE.

The State Disability Insurance program “cheated people out of benefits while overpaying others,” according to internal audits and interviews with state employees. From 1999 to 2001, the program overpaid between $124 million and $200.7 million to “injured” people who may not have deserved the payments, while as much as $191.9 million in benefits were denied or delayed by processing errors. There were errors on nearly 40 percent of processed claims. State employees complained of an increased workload, contributing to errors. Responded then-SDI Deputy Director LaVera Gaston (who was soon to be moved to another state agency): “These audits look very scary, but they’re not. … I’m very concerned about the errors, and we’re taking every step possible to reduce them and eliminate them.” She said the loudest complaints were from state employees asked to increase their output after being used to “sitting back all day with nothing much to do.” The investigative reporting of Robert Salladay was published in the San Francisco Chronicle (January 26, 2003).

($12.5 to $58.4 Million) STATE PRISONS: SOARING SICK LEAVE.

Use of sick leave and resultant overtime in the state prisons system increased dramatically in the first four months in 2002 of a new labor contract approved by the Davis administration. A 20 percent hike in sick leave will add $12.5 million to the state budget over a full year. Overtime would be up $58.4 million. The new contract makes it more difficult for prison wardens to clamp down on suspected abuse of sick leave. (Los Angeles Times, June 27, 2002.) The Bureau of State Audits documented excessive overtime and sick leave among prison guards in a January 26, 2000 report. The controversial contract with the correctional officers’ union liberalized sick leave policies, thus exacerbating an already costly situation that the guards’ union contends would be solved by merely hiring more staff. Critics of growth in the prisons budget respond that millions of dollars could be saved by contracting with the private sector to build and operate lockups.

($2 Million) CONVICT HEART TRANSPLANT.

State prison officials on December 17 reported the death of a 32-year-old two-time felon less than a year after he received a heart transplant at the prestigious Stanford University Medical Center. Spokesperson Russ Heimerich said the exact cause of death had not been determined but it appeared that the man’s body was rejecting the heart while he convalesced at the Vacaville medical prison. He died on December 16 at the medical center, where he was admitted November 23. Mr. Heimerich told the Sacramento Bee that the costs to taxpayers for the operation and follow-up care “could easily reach $2 million when it’s all added in.” The Department of Corrections blames complications with a contract at the University of California at San Francisco hospital and timing of the heart’s availability for having the procedure done at Stanford. It was reported that the average heart transplant nationwide is a $200,000 procedure. The inmate was serving a 14-year-sentence for the 1996 robbery of a Los Angeles convenience store, and would have been eligible for parole in 2008. It was the first reported case in the nation of a prison inmate receiving a heart transplant. Mr. Heimerich said the “whole question of whether it is ethically correct is moot – we have to do it.” The courts have ruled that medical care must be provided inmates and, as the California prison inmate population ages, The Bee reported there is concern that the cost of inmate health care will far exceed last fiscal year’s $663 million. (The state’s prisons house about 155,000 convicts, and the governor’s budget proposal for fiscal 2002-03 estimated the Department of Corrections’ Health Care Services Program would require about $735 million.)

($500 Million) PRISON LABOR CONTRACTS.

The Legislative Analyst’s Office said a labor agreement approved by the governor with the California Correctional Peace Officers Association will cost the state more than $500 million a year, possibly as much as $1 billion a year when fully effective by 2006. A number of state legislators said they were unaware of the contract’s provisions when they ratified it. (Los Angeles Times, San Jose Mercury News, May 16, 2002.)

($200 Million) PRISON OVERTIME BONANZA.

At least 110 state prison correctional workers made more than $100,000 last year, thanks to overtime pay that budget watchdogs have criticized as excessive. Dan Morain of the Los Angeles Times (February 10, 2003) reported that the state’s 23,000 correctional officers, including sergeants and lieutenants, amassed $200 million in overtime in 2002, with hours amounting to 25 percent more than the level of 2000.

($200 Million) SICK LEAVE SOARS AMONG PRISON GUARDS.

As a side effect of the 2002 contract between the state and the California Correctional Peace Officers Association, wardens have less authority to challenge whether an officer claiming sick leave is actually sick. Thus, in 2002, the first year of the new contract, overtime hours amounted to 25 percent more than the level of 2000. As officers were called in to work shifts of officers calling in sick, some 23,000 officers amassed $200 million in overtime last year. At least 110 of the officers made more than $100,000 last year. Top scale last year was $54,888. Overtime, considered excessive by some, has been a long-festering issue in the Department of Corrections. The union says the solution is to hire more personnel. The latest story was in the Los Angeles Times (February 10, 2003).

PRISON MEDICAL COSTS SOAR.

Failure to modernize prison health care has been blamed for soaring costs to taxpayers for treatments of state prison inmates. Costs went from $96 million in 1998 to an estimated $263.1 million in 2003, despite a warning three years earlier that millions of taxpayer dollars were being wasted. Among the problems needing fixing was allowing each of the state’s 33 prisons to make separate purchases of drugs and medical equipment, according to the Bureau of State Audits. The story was in the Inland Valley Daily Bulletin (January 26, 2003).

ENDLESS “VACATION.”

At taxpayer expense, a California prison guard has been collecting full salary for staying off the job. So far, Shayne Ziska has pocketed $150,000 for two years and six months of administrative time off. He was suspended by the Department of Corrections while the FBI investigates whether he was connected with a prison gang. The 41-year-old guard denies such an association. He has not been formally charged with anything. Civil Service rules will not allow him to be fired unless he’s convicted of a crime. State officials say they were asked by the FBI to hold off on a state probe until the federal investigation is finished. Meanwhile, Ziska is on the payroll, building up vacation days and pension benefits. The Los Angeles Times’ editorial (May 30, 2003) said this outrage is an example of waste that “sends taxpayers over the edge at a time when the state faces multibillion-dollar shortfalls.” How about putting him at a desk job away from convicts? the newspaper asks, noting that his absence adds to a prison staff shortage.

($69 Million) PRISON OVERSPENDING ONCE AGAIN.

In what sounds like a broken record, the state prison system is again asking for more money because it has overspent its budget. The San Jose Mercury News (May 22, 2003) reported that rising overtime costs fueled in part the Department of Corrections request for an additional $69 million. The agency has overspent its budget in six of the past fiscal years, including $178.6 million last year. The paper quoted Assembly Member Sarah Reyes: “The Department of Corrections is the most poorly run state agency in the state of California. They have to be willing to solve the problem, not continually come to the well for more money.”

($250 Million) L.A. COUNTY FRAUD LOSSES SOAR.

Los Angeles County loses about $250 million a year to waste, fraud and abuse, the Los Angeles Daily News reported (March 8, 2004), a figure that Auditor-Controller Tyler McCauley said could be reduced significantly if there were more internal audits and better enforcement. He bemoans inability to take more action because he has fewer investigators.

The paper said records released by the county show record numbers of convictions and firings in 2003 that involved $1.5 million. That figure is 17,000 percent above the dollar loss of $8,878 in 2000. Investigations opened 512 cases last year, compared to 279 in 2000. That’s an 84 percent increase. Substantiated cases increased 23 percent, from 77 to 95.

Among the cases was theft of $220,000 in child support payments by a Child Support Services Department employee. This case was sent to the district attorney.

The paper said investigators believe they actually uncover between $3 million and $4 million a year in fraud, not counting lost productivity. There is an investigation of an alleged $800,000 embezzlement of job-training funds for immigrant refugees. Also being probed are suspected losses of millions of dollars from misuse of taxpayer dollars in contracts for senior services, welfare and children’s services in eight programs, the paper reported.

A number of cases involve illegal use of county computers, including the distribution of pornography, the article said.

($1.3 Billion) BILLION IN PENALTIES FOR MISSED DEADLINES.

A December report by the California State Auditor notes that the state’s failure to implement a statewide automated child support collection system will cost the state $1.3 billion in federal penalties by 2006. The state has been fined since 1998, and the fine in 2003 is estimated to total $207 million, the auditor noted. The Contra Costa Times (December 18) article noted that South Carolina is the only other state paying fines for failing to meet the 1997 federal deadline. California now uses a variety of systems to track payments. California taxpayers spent some $111 million for a system that failed in 1997, the newspaper reported, and now state child support officials are negotiating with a consortium led by IBM for automated collection technology. The consortium submitted the lone bid for the project, valued at $1.3 billion over 10 years. Department of Child Support Services Director Curt Child said the audit confirmed that the department is meeting its goals. “This thing is on track,” he said, adding that the federal government could stop its fines as soon as the 2005-06 fiscal year. The San Francisco Chronicle (December 23) reported that about $1 billion in support was collected in 2001 throughout California, only 41 percent of the total amount of child support owed. That’s just slightly better than the 40 percent from the year before.

POOR FOOD STAMP ADMINISTRATION.

Cash-strapped California is being fined again by the federal government for mismanaging food stamps. As the Los Angeles Times reported (June 28, 2003), California’s level of mistakes is the worst in the nation, issuing more than $172 million in food stamps to those who were not entitled and underpaying others by about $79.5 million, according to Eric Bost, undersecretary of the U.S. Agriculture Department. California is appealing last year’s $114 million penalty, the largest in the program’s history. The Bush Administration notified the state that this year’s fine is $62.5 million. The state reduced its error rate from 17.4 percent in 2001 to 14.8 percent in 2002, but it remains higher than other states. Governor Gray Davis’ Social Services director, Rita Saenz, told The Times that the major problem has been in Los Angeles County and it is due to difficulties with a new computer system installed in 1999. Workers were poorly trained with the system and stopped using it to track cases.

($66 Million) TAXPAYERS PAY FOR $36,000 WHEELCHAIRS.

Wheelchairs made in Sweden costing $36,000 – more than the cost of a C-Class Mercedes Benz – are being paid for by Medi-Cal (taxpayers), the Los Angeles Times reported (July 20, 2003). In the past five years, the cost to provide wheelchairs to Medi-Cal recipients has doubled, to $66 million a year. According to the Times, “State officials have made only sporadic and largely futile efforts to control what they spend on the most expensive piece of equipment Medi-Cal buys. They have repeatedly bent to political pressures and jettisoned their own cost containment rules and initiatives.”

Apparently, California is the only state in the nation to pay the retail price for wheelchairs. It has also failed to regulate effectively the numbers and types of chairs it supplies to recipients, the paper said.

Meanwhile, a 38-0 Senate vote on June 4 approved SB 857 (Speier), which enables the Davis administration to carry out an intensive anti-fraud audit of the state’s Medi-Cal system. As newspapers have reported, and Cal-Tax has noted in Fraud and Waste coverage, estimates of fraud in Medi-Cal range up to $2.9 billion a year. Senator Jackie Speier noted that the governor had included the study in the May 14 state budget revision. The bill now goes to the Assembly.

DENTAL WORK SCAMMERS CHEAT MEDI-CAL.

State lawyers have filed a fraud lawsuit against eight individuals in four “dental clinics” in Southern California, charging them with 64 counts of stealing the identity of unsuspecting dentists and cheating the Medi-Cal system out of at least $380,000. The legal crackdown was announced in a March 14 press release from the state Department of Justice, three days before legislators called for a special state audit of the $25 billion Medi-Cal program. The follow-up action was prompted by investigative reporting in the Los Angeles Times (December 26, 2002) that as much as 10 percent of Medi-Cal billings are fraudulent. The call for a state audit was reported in the Stockton Record (March 18, 2003).

FOSTER CARE NEEDS OVERSIGHT.

Although more than $11 million has been spent studying California’s foster care program in the past three years, no dramatic progress has been made toward dealing with the $2 billion-a-year program’s shortcomings. That was a conclusion of the state’s Little Hoover Commission, whose chair, Michael Alpert, said, “With no one in charge, the foster care system fumbles forward, and often backward, and costs children and families their happiness, their prosperity and even their lives. The buck stops nowhere.” Los Angeles County spent $12 million in the past three years settling lawsuits involving foster children who died or were abused. The article was in the Los Angeles Daily News (February 4, 2003).

($1.3 Billion) MISSED CHILD SUPPORT DEADLINE IS COSTLY.

California’s failure to implement a statewide automated child support collection system will cost the state $1.3 billion in federal penalties by 2006, according to a Bureau of State Audits report. The state has been fined since failing to meet federal standards in 1998, and the fine in 2003 is estimated to total $207 million, the state auditor noted. The story was in the Contra Costa Times (December 18, 2002). The child support collection effort “is on track,” said Department of Child Support Services Director Curt Child, saying the federal fines could stop as soon as the 2005-06 fiscal year. About $1 billion in support was collected in 2001 throughout California, only 41 percent of the total owed and just slightly better than the 40 percent for the year before. The story was in the San Francisco Chronicle (December 23, 2002).

($440 Million) STATE AUDITOR FINDS OVER $440 MILLION IN SAVINGS.

The Bureau of State Audits since mid-2001 has recommended efficiencies that would save in excess of $440 million, according to State Auditor Elaine Howle. She said her non-partisan office has been conducting performance audits of public entities for more than 30 years, according to Capitol Morning Report (March 22), which said Ms. Howle was reacting to State Controller Steve Westly’s March 17 news conference at which he said he wanted to use his office’s performance audit capability to make government more effective.

On the Bureau of State Audits website is a summary of benefits (State Auditor Report 2004-406) identified in audits released from July 1, 2001 through last December 31. The audits range from a finding of inadequate fiscal practices and internal controls at the Department of Corrections to a state law to make school bus transportation safer costing $235 million more than expected. The state auditor also recommended renegotiations of certain energy contacts ($29 million, according to the April 2003 report, which said the annualized carry forward from prior fiscal years amounted to $64 million).

($41 Million) ORACLE DEBACLE.

The Bureau of State Audits reported that the state entered into a no-bid $95 million enterprise licensing agreement with Oracle Corporation for more software than was needed, paying up to $41 million more than it should have. (San Jose Mercury News, 2001, and confirmed by April 16, 2002 Bureau of State Audits report.) Publicity, including legislative hearings, resulted in dismissals or resignations, tightened contracting practices and an agreement by Oracle to terminate the contract.

($275,000) SOUND WALL ART.

Archway etchings, metal cutouts of swallows and other decorations for a freeway wall are costing taxpayers $275,000, which has some residents of San Juan Capistrano calling it a waste of money, while others appreciate the aesthetics, reported the Orange County Register (June 21, 2003). Caltrans said the concrete wall, up to six feet high, is needed to prevent cars from running off the San Diego Freeway onto Camino Capistrano. The wall, with a total cost of $1.38 million, is due to be finished in October. Caltrans spokesperson Pam Gorniak said that the city supported the extra work, which is afforded through cost savings during the design stage. Council Member David Swerdlin said such art work “breaks up the monotony” for motorists. Tony Forster, San Juan Capistrano Historical Society president, told the paper: “We need to leave the historical stuff to the historical people. It’s not the state’s job – they should fix the freeways they have. I just hit three potholes on the freeway, and it annoys me that our freeway system is falling apart and Governor Gray Davis is paying money for art in public places.”

($100 Million) L.A. NEEDS BETTER MANAGEMENT.

Los Angeles Controller Rick Tuttle said the city mishandles taxpayer dollars to the tune of more than $100 million a year. Mr. Tuttle said the city has allowed permit and license fee payment checks to sit uncashed for months. (Los Angeles Daily News, June 1, 2000.)

($25.3 Million) CHARGER TICKETS.

One of the longest-running wastes of taxpayer dollars involves San Diego’s contract with the San Diego Chargers to play football in the publicly owned stadium. The city agreed to buy up enough tickets to assure at least 60,000 sold seats for each game, regular season and exhibition. The 1995 contract expires in 2005. With losing seasons suppressing attendance, the city had spent $25.3 million for unsold tickets and collected $28.8 million in rent through last season. More than one San Diego mayor has tried to renegotiate the contract, which included expansion of the stadium to attract a Super Bowl. If that wasn’t bad enough, city staff members recently broke the news to Mayor Dick Murphy and the council that taxpayers were buying tickets for seats that don’t exist – “phantom seats.” The city had been sued under the Americans with Disabilities Act and had to modify 1,840 seats, eliminating 673. The San Diego Union-Tribune reported November 21, 2002 that at a recent near-sellout of a game against defending champion New England, taxpayers bought 666 tickets, most of them for non-existent seats, for $38,454. The public – and the current council and mayor – were unaware of the deal that held the Chargers harmless for loss of seating capacity because it had been discussed in executive session due to the litigation over the stadium’s access to the handicapped.

($11 Million) MILLIONS WASTED ON UNNECESSARY CITY CARS.

A report by San Jose City Auditor Gerald Silva found millions of taxpayer dollars wasted on the purchases of new cars when old ones work fine, giving vehicles to employees who probably don’t need them, and purchasing more expensive models. The purchasing system has few controls, with cars stockpiled regardless of need and some with relatively low mileage being replaced. The city has eliminated $11 million in waste because of the report and there was potential for $20 million in additional savings. Mayor Ron Gonzalez ordered a freeze on all new vehicle purchases. The story was in the San Jose Mercury News (February 8, 2003).

($80 Million) CRIME VICTIMS FUND RUNS DRY.

Bureaucratic bungling has hurt the ability of legitimate victims of crime in California to collect from a fund that is running dry, according to a report by the Pacific Research Institute’s Andrew M. Gloger and Lawrence J. McQuillan. “Thousands for lawyers and therapists, not a penny left for victims of crime,” they wrote. The fund, financed from fines paid by convicts or assessments on their trust funds, is expected to be $80 million in the red by June 2004, they wrote. Instead of helping families recover from crimes, including therapy and funerals, state law upped the maximum award from $46,000 to $70,000 in 2000. The article says the board that oversees the fund “confirms that attorneys were rewarded generously ‘irrespective of the level of amount of legal services provided to the victim” and the fund has become “a pork barrel for government workers, therapists and lawyers.” The commentary was published in the Los Angeles Times (February 13, 2003).

($1 Million) MILLION-DOLLAR WATCHDOG.

The state Department of Mental Health is spending about $1 million to create a supervised-release program for one convicted child molester. The department said the annual per-offender cost will be decreased to about $180,000 as more offenders enter the program. Department Deputy Director John Rodriguez: “I don’t disagree that we have tough financial times. But this is a public safety issue.” The story was in the San Jose Mercury News (March 15, 2003).

CALTRANS LOSES INTEREST ON BRIDGE TOLLS.

Caltrans didn’t physically count the tolls collected at the San Francisco-Oakland Bay Bridge for up to a month, the Tri-Valley Herald reported (June 12, 2003). As a result, up to $12 million in cash piled up in a Caltrans vault, and the Bay Area Toll Authority failed to get the interest the money could have earned. Caltrans’ excuse: not enough people available to do the counting.

COMPENSATION RUFFLES FEATHERS.

Owners of roosters, hens and other “backyard birds” that have to be destroyed to control Newcastle disease are compensated between $5 and $1,800 per bird. The federal and state combined Exotic Newcastle Disease Task Force would not say how one bird could be worth $1,800, but a state Food and Agriculture official said it was possible that some of the money has gone to breeders of fighting cocks. Cock fights are illegal in California but breeding and raising cocks that might be used in such activity is legal. Owners have to be compensated for fair market value. More than 3.1 million birds have been destroyed in the campaign to eradicate the disease. The report was in the Bakersfield Californian (March 17).

UNSPENT FEDERAL GRANTS.

Citing red tape, the Davis administration has acknowledged that it has been unable to use all of the federal funds made available since 2000 budget cycles that could pay for anti-terrorism equipment.  The administration said the amount is less than the $30 million cited by the White House in the wake of Governor Gray Davis’ nationally broadcast speech critical of the Bush administration for not providing the states enough homeland security money. The story was in the San Francisco Chronicle (March 14, 2003).

($125,000) STATE BOUGHT $125,000 WORTH OF TEDDY BEARS.

Using emergency purchasing procedures and bypassing competitive bidding, the Department of Motor Vehicles spent $125,000 to purchase teddy bears, the Bureau of State Audits reported March 26, 2003. The bears were used as promotional items during the 2000 census. The report said, “In this case, the expeditious purchase of an item may be convenient, but it is not allowed under current statutes.” Taxpayers questioned not only using emergency purchase powers, but the underlying use of taxpayer dollars to buy the teddy bears. Assembly Member Rebecca Cohn, chair of the Legislature’s Joint Audit Committee said, “These small stuffed toys will bring no comfort to the children of California who are asked now to go without health care, textbooks and teachers in this terrible budget year.”

PRICEY ARTWORK.

A $1 million “Golden State” art project is a major attraction of the state’s new East End Project, reported The Sacramento Bee (April 16, 2003). Lita Albuquerque’s two-block sculpture, as described by The Bee’s Bob Sylva, is the most ambitious and expensive piece of public art in Sacramento history. The $392 million East End Project takes in five city blocks and will house 6,000 public employees to the east of Capitol Park. It was approved during better economic times, Mr. Sylva notes, and he adds that public art, at best, creates a public fuss. The project is called “GoldenState” and features a small amphitheater, a 25-foot-tall “Rain Curtain,” and a constellation of 54 “Star Sculptures.” These represent the alignment of the sun, five planets and various stars on September 9, 1850 – the day of California’s statehood.

BIG PAY FOR MORE STATE EMPLOYEES.

Since 1995, there has been a fivefold increase in the number of state employees with salaries above $100,000, the San Francisco Chronicle reported (June 1, 2003). Citing figures from Capitol Weekly, a publication that tracks state jobs and pay, The Chronicle noted that there are 5,125 members of the 100K club. Eight years ago, there were just over 1,000 of them. There are 176 who make more than the governor’s $165,000 a year.

Overtime also enabled a California Highway Patrol officer – who is the bodyguard of the lieutenant governor – to make $137,577, which is more than the lieutenant governor makes. The Chronicle obtained a list of the top 1,500 salaries in state government from the state controller. The list does not include salaries of state university presidents (the California State Universities president makes $316,692). Jon Coupal of the Howard Jarvis Taxpayers Association: “It’s no secret that California is the land of milk and honey as far as public employment goes.”

STATE’S FOREIGN TRADE OFFICES OVERSTATE BENEFITS.

Nine of the state’s 12 foreign trade offices fall woefully short of meeting the California Technology, Trade and Commerce Agency’s stated goal of $2 for the state’s economy for every $1 in taxes consumed in the process, reported the Orange County Register (May 25-26, 2003). The paper’s investigation found $44 million in false or overstated deals in an annual report that the administration uses to persuade the Legislature to continue funding the $6 million-a-year offices.

According to The Register, about a dozen companies contacted said the trade offices played a direct and pivotal role in generating business. However, the paper said, most of the 58 companies contacted were not impressed, including Dave Murray of American Safety and Rescue, which went to a trade fair to market its equipment. “They are not providing anything that is unique or beneficial,” Mr. Murray said of the trade offices.

Governor Gray Davis’ Technology, Trade and Commerce Agency secretary, Lon Hatamiya, told the paper, “I’m presuming that everything they report is accurate. We’re relying on the validity of what (the trade offices) are providing.”

The successful trade offices – Taiwan, Japan and Singapore – more than met the $2-for-$1 goal, the article stated, and the trade office budget, although taking some cuts in recent years, has been allowed to grow in number of offices (Shanghai the most recent, added in 2000) by the Legislature. Senator Burton: “As long as I have been in the Legislature, governors have opposed any attempt to eliminate the trade offices. I assume they consider them mini-embassies and want them as political plums for their friends. They’ve said (trade offices) help California businesses, but they have never demonstrated whether they did or didn’t.” (Editor’s note: The 2003-04 state budget phases out the existing dozen trade offices.)

BAY BRIDGE COSTS NEAR $3 BILLION.

According to the Contra Costa Times (July 3, 2003), the “incredibly expensive” replacement eastern span of the Bay Bridge is nearly triple the original cost estimate. State engineers have upped the price tag another $353 million, pushing the total perilously close to $3 billion, the paper reported. It reported that Caltrans attributes cost increases to the bonding insurance market, which has been affected by concerns about terrorist attacks, a tight steel market and the complex and unique design of the $700 million, self-anchored suspension span that was demanded by Bay Area leaders instead of a cheaper design.

MORE EX-LEGISLATORS ON PAYROLL.

In what has been called a byproduct of term limits, nine former state legislators have been on the Assembly’s payroll over the past five years, the San Francisco Chronicle reported March 30, 2003. They make up to $8,610 a month. As consultants or employees, many are on short-term contracts. Bob Stern, director of the Center for Governmental Studies in Los Angeles, said there seems to be a tradition of helping former colleagues with a job until they land a more permanent position. “The practice is on the rise,” he said, “because before term limits you didn’t have to worry about new work. You pretty much had a legislative job for life.” This sort of fringe spending of public tax dollars is drawing more attention in the media because of the state’s epic budget deficit. It’s not enough to make a dent in the budget problem but it doesn’t look good, the Chronicle reported. The Los Angeles Times (April 4, 2003) reported that Assembly Speaker Herb Wesson has given consulting contracts totaling nearly $350,000 to half a dozen political allies. The money comes from the Assembly’s $114 million budget. The speaker told The Times, “The speaker is empowered to bring people on to do the things he thinks need to be done. I’m big on people that can help me connect with other people.”

L.A. CELL PHONE COSTS RISE.

Since 1996, the number of Los Angeles city employees with taxpayer-funded cell phones has more than tripled, and the 4,105 users’ bill totaled $1.5 million in 2002, the Los Angeles Times reported June 22, 2003. Since reforms were implemented in 1996, designed to prevent waste or inappropriate use of the phones, the city’s phone bill has increased 72 percent. And some top officials still ring up bills of $500 to $800 a month. Mayor James Hahn, whose bills are about $120 a month, has called for a review of the city’s policies by the Information Technology Agency, which may recommend additional reforms. Questions to be answered include whether use of cell phones increases productivity. Council Member Ruth Galanter, whose bills average just $37 a month, said, “Cell phone use is expensive and this is the people’s money, so I try not to use the cell phone for calls that can wait for my return to the office.”

L.A. GREEN ENERGY CHIEF QUITS.

City Controller Laura Chick on May 30 said she has ordered another audit of the Department of Water and Power’s renewable energy program in the wake of the resignation of the department’s strategic planning director. An audit last year found that the department’s “Green L.A.” program had spent $22.7 million since 1999 to develop solar energy but had not produced “significant amounts of new green power.” In the Los Angeles Times (May 31, 2003), Ms. Chick said, “I am indignant because months and months ago our audit said something was wrong with the management and decision-making of this program. I had hoped things would have changed.” Angelina Galiteva said she felt no pressure to resign, even though she left amid criticism that her office overspent its budget for solar power and may have provided rebates to ineligible groups.

A RUSTY ELEPHANT.

Every city seems to have its “white elephant.” Leave it to San Francisco to have a rusty elephant as well. It is a rusting, 60-year-old dry dock that, according to a San Francisco Chronicle report June 1, 2003 by Phillip Matier and Andrew Ross, is sinking the city in red ink. The costs of dealing with it could amount to $4 million. The dock broke from its moorings last November and drifted halfway across the bay to Yerba Buena Island. Getting the 654-foot vessel off the island has already set the city back $1.7 million. The city wanted to sell it for scrap, but the only offers were to charge the city $800,000 to remove it. Meanwhile, it has been moved to Pier 70, which is owned by the city but nonetheless costing taxpayers $300 a day to lease the space. That’s because the pier space was leased to a private dry dock company. Now the city budget analyst says it will cost $120,000 to figure what environmental problems might crop up if the city decides to scuttle the vessel or move it. It could be an additional $1.5 million to junk it. Someone at City Hall told the columnists: “To sum it up, it’s a comedy of errors.”

($4 Million) SAN JOSE’S MONEY-LOSING CENTER.

San Jose’s McEnery Convention Center lost at least $4 million last year, at least in part because of unusually high labor costs, the San Jose Mercury News reported (May 29, 2003). The center is losing money six times faster than comparable convention facilities in the nation, the paper said, citing a report by an independent consultant, Strategic Advisory Group. The economy also is a cause of the convention center problem, but the report said the city could save up to $5.1 million a year within five years through better management of the center. The report’s conclusion that using city employees to staff the center means a higher, less-flexible payroll than if the city contracted with a private company.

PAPER SAYS SAN JOSE OVERSPENT FOR PURCHASE OF SALT POND.

Despite reports that the price was too steep, the San Jose City Council on May 20 voted to spend $13.5 million (or $15,775 an acre) to buy an 856-acre salt pond owned by Cargill Salt. According to the San Jose Mercury-News, the city paid more per acre than the state and federal government did for similar real estate. And the paper said the state may have over-paid because it relied on outdated economic assumptions. The state and federal government paid $6,000 an acre in March, using an appraisal that based much of the value on an assumption that the San Francisco and Oakland airports would be extended into the bay (projects which have been shelved). According to the paper, the appraisal said the value of the ponds for making salt is only $3,000 an acre.

DEL NORTE COUNTY SKATEBOARD PARK COSTS ESCALATE.

The estimated cost of the new skateboard park being built by Del Norte County in Crescent City has doubled to $442,000, the Daily Triplicate reported April 3, 2003. A 15,000-square-foot park of rolling concrete bowls, curves and inclines is to be installed on land donated by Crescent City at 6^th and D. Due to the added costs, the county is asking the state for another $120,000 for the project. When asked if the park design could be pared-down to fit the current budget, County Administrative Officer Jeannine Galatioto said, “Possibly, but you have to remember this is a public works project.”

CITY CREDIT CARDS ALLEGEDLY USED AS “PIGGY BANKS.”

According to a 1,350-page grand jury transcript, the Los Angeles Times reported April 10, 2003, several Compton officials used city credit cards as “personal piggy banks.” Prosecutors said some charged their travel on cards that the city had already funded. While some had reimbursed the city, that did not eliminate the illegality, prosecutors said. In February, the grand jury indicted former Mayor Omar Bradley, the city manager and three council members on felony charges of misusing public funds. One of the council members charged $150 to have a beehive removed from a neighbor’s property, The Times reported.

SUPERVISORS BOOST PAY.

San Francisco supervisors’ pay will triple – to $112,320 a year – in the coming fiscal year, reported the San Francisco Chronicle (May 21, 2003). The raises, amounting to $822,085 for the year, were approved 3-2 on May 19 by the San Francisco Civil Service Commission. The vote was final, since voters last November gave the commission the power. The commission did not say where the money would come from, since the city is struggling to close a $347 million deficit for the year starting July 1.

Meanwhile, in Sacramento County, The Sacramento Bee reported May 21 that county supervisors approved, by a 3-2 vote, the voluntary option for individual supervisors to cut his or her own salary through June 30, 2005. County supervisors are paid $76,716 a year, and the county has a projected $101 million budget shortfall.

S.F. NOW-DEAD RUNWAY PROJECT IS COSTLY.

San Francisco Budget Analyst Harvey Rose has issued a report critical of the now-dead, $75 million project to expand runways at San Francisco International Airport. He found lavish spending on consultants, reported the San Jose Mercury News (May 22, 2003), including $4,000 flights to the East Coast, $500 hotel rooms and $16,000 computer work stations. The report of how the airport spent $75 million studying a project never assured of being built, according to The Associated Press, also found that premature spending on land amounted to $742,000. Kandace Bender, spokesperson for the airport, said the project was “completely on the up and up.” She said, for example, that an $800 meal involved a working dinner attended by more than a dozen people, and $4,700 in phone charges accounted for conference calls with experts.

($1.5 Million) SUSPENSIONS WITH PAY OF ORANGE COUNTY PROBATION OFFICERS COSTS BIG BUCKS.

Orange County probation officers have been paid for 7,771 days while on suspension during the past five years, according to a Los Angeles Times (May 12, 2003) story on a county report. The cost to taxpayers was $1.5 million for full pay and benefits for the 50 employees placed on administrative leave. According to The Times, one probation employee was charged with misleading the FBI in an investigation of corruption in the city of Santa Ana, where he sat on the City Council. Another drawing full pay was charged for printing confidential criminal records and leaking them to his attorney wife to use in preparing a case. County supervisors have asked for an explanation.

AUDITS: INACCURATE SHERIFF’S RECORDS.

Against the backdrop of the sheriff’s budget wars with Los Angeles County supervisors, audits have shown what the Los Angeles Times (May 13) called sloppy record-keeping and contracting contributing to the sheriff’s budget problems. In a May 12, 2003 article, the Los Angeles Daily News reported that, according to audits, Sheriff Lee Baca doesn’t know how much it really costs to provide services to contract cities. He could be charging too much or too little. The sheriff’s budget woes include up to $143 million in reductions. The office is in the process of releasing 2,600 jail inmates to trim expenses. The county Auditor-Controller’s Office released the audits, concluding that the tracking of patrol deputies’ time is inaccurate and cannot be used to bill contract cities for actual services provided. “This practice will continue to result in the county either subsidizing the cities or overcharging them,” auditors said.

($70 Million) BAD LOANS HAUNT REDEVELOPMENT AGENCY.

The Los Angeles Community Redevelopment Agency was reported considering the sale of its portfolio of “troubled” loans for losses that could total as much as $70 million, the Los Angeles Times reported May 1, 2003. Mayor James Hahn suggested that the CRA sell some of its loans to private investors, even at a discount, to raise money for affordable housing and to keep the agency in business. The paper reported that the CRA made loans that were highly favorable to borrowers, including developers who have not paid in more than a decade. Jerry Schneiderman, whose Colony Bancorp owns 20 large buildings in the Hollywood redevelopment area, told The Times: “The CRA has consistently wasted money, loaning it to politically influential people with no intent of collecting on it.”

AUDIT: L.A. COUNTY CONTRACTS ARE POORLY MANAGED.

Los Angeles County auditors say poor management by county officials is to blame for millions of dollars in fraudulent spending through systematic overbilling by private contractors. The Long Beach Press-Telegram reported (April 29) that, according to Auditor-Controller Tyler McCauley, fraud is easy because nearly $4 billion in contracts lack oversight. About 2,800 contractors are used for services in child protection, for senior citizens, mental health, welfare and probation programs, the paper reported. County supervisors have reacted by centralizing contract monitoring in Mr. McCauley’s office. “None of these departments effectively monitors its contractors to ensure that they consistently provide the services expected of them,” said Supervisor Zev Yaroslavsky. The rip-offs have included use of taxpayer dollars for unallowed cars and trips, including debts at a Las Vegas casino, travel to the Philippines and charges for jewelry and clothes. The newspaper quoted Jon Coupal, president of the Howard Jarvis Taxpayers Association, as saying while contracting out is better for taxpayers 80 to 90 percent of the time, government staff, in negotiating contracts, are outfoxed by “very sophisticated individuals.” Mr. Coupal added: “And quite frankly, one of the biggest areas of abuse in contracting is directing contracts, not to those who can provide good services at a fair price, but to cronies of the political establishment.”

($1.34 Million) PAID LEAVE COSTS MOUNT.

Since 1999, Orange County District Attorney Tony Rackauckas has suspended 14 attorneys, investigators and clerical staff for a total of 1,602 days with full pay and benefits. The cost to taxpayers: $740,000. Plus, two of the employees have been reinstated with back pay of $600,000, bringing to more than $1.34 million paid or owed to district attorney employees for not working, reported the Los Angeles Times (April 13). Mr. Rackauckas has declined to discuss the issue but in February he told county supervisors that he has been unable to hire 13 prosecutors because of a serious budget shortfall. Tom Wilson, chair of the Board of Supervisors, said administrative leave is necessary during investigations but should not drag on for months.

L.A. FIRE OVERTIME.

Overtime pay has made Fire Department employees among the highest-paid public employees in Los Angeles, with 15 of them making more than the mayor’s $179,700-a-year salary, the Los Angeles Times reported October 25. Fifty-six of the top 100 in pay are with the Fire Department, topped by one who had $137,775 in overtime added to base pay of $86,718, for a total of $224,493. According to The Times, some city officials expressed concern and suggested that overtime be spread out more evenly among department employees. A key question is whether the city has enough firefighters. The department is understaffed, not overpaid, said Patrick McOsker of the firefighters’ union.