Summer 2003

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Tax $$$: Fraud & Waste 

Message from Cal-Tax President Larry McCarthy: These reports of fraud and abuse underscore the need for greater review and evaluation of public spending in California.

Most of the cases are cited as newspaper reports, many of them based on official government audits, as well as accounts of alleged criminal activity. Cal-Tax does not allege fraud occurred in these cases. The term is reserved for those cases where charges were attributed to legal authorities.

Regardless of whether laws were broken, mismanagement is a common thread in these cases.

In recent years, well over 200 cases have been chronicled. These newspaper investigative reports and coverage of government audits suggest that there must be a systematic review of public spending that should lead to better management of our $130 billion in annual state and local tax dollars.

Well in excess of $10 billion in tax dollars have been wasted by fraud and abuse in California state and local government, including education, over the past four years.

Newspapers, often reporting on official government audits as well as bringing misdeeds into the open with investigative reporting, have given readers a steady stream of articles that generally document lack of oversight, accountability – or outright wrongdoing.

Missing from this perspective is an overview. The total picture should be alarming to taxpayers and policy-makers. They should demand that the flow of misused or illegally spent tax dollars be addressed before they allow additional taxes that would underwrite even more fraud and waste.

Cal-Tax staff has rounded up articles and reports and issued periodic Fraud & Waste reports. The last report was issued in March. They are available at Cal-Tax Online (www.caltax.org).

We acknowledge that in some cases there have been corrective actions, yet others have festered, such as well-documented cases of Medi-Cal fraud.

The $10 billion figure is a conservative figure. There undoubtedly is more fraud and waste than has been reported in newspapers and government audits.

Here are recent examples:

STATE GOVERNMENT

UNEMPLOYMENT INSURANCE. FRAUD AMOUNTS TO $280 MILLION. 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.

medi-cal: 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.

WORKERS’ COMP: GRAND JURY SEES STAGGERING COSTS. Workers’ compensation insurance costs of $135 million have nearly doubled over the past five years for Los Angeles County sheriff and fire departments, according to a new county Grand Jury report. Coverage by the Los Angeles Times and the Los Angeles Daily News (June 28, 2003) noted that workers’ comp costs for the 14,000-member Sheriff’s Department were $93.4 million in 2002, up 92 percent since 1998, while the number of deputies has increased just 16 percent, The Times reported. Sheriff Lee Baca: “I’m deeply concerned about the runaway train of workers’ compensation costs. Every dollar we spend on (those) costs is one less we have (available) to spend on a real deputy sheriff.” The Daily News focused on the “hidden costs” of replacing injured workers and paying overtime. The Grand Jury said in its year-end report that these costs add as much as 80 percent to the bill. Future costs for Los Angeles city and county governments will be in the billions of dollars, the jury concluded. County Supervisor Zev Yaroslavsky: “It’s the single, fastest-growing cost in county government. It’s even outpacing salaries.” Recently passed laws, such as one that allows public safety workers to take a year off on disability without a loss of salary, were cited as causes for escalating costs. County government will pay $304 million this year and up to $350 million in the 2003-04 fiscal year, the report said.

WORKERS’ COMP POLICY WASTEFUL, OFFICIALS SAY. Contra Costa County employees who are injured can make more money staying home than going to work, county officials have told the Contra Costa Times (March 31, 2003). While county supervisors might want to do something about it, the newspaper said change might be hard because the county’s generous plan is included in contracts for each county employee group. Under the program, employees receive 86 percent of their salary tax-free for one year, and John Sweeten, the county administrator, said that exceeds net take-home pay with taxes deducted. The county’s workers’ comp costs have increased over 39 percent in the past three years, according to a report by the county Risk Management Department. It compared programs in six counties with similar systems and found Contra Costa’s injured employees spend more.

FOOD STAMPS: ERRORS PROMPT ANOTHER PENALTY. 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.

PRICY 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 “Golden State” 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.

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.

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.”

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.

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.

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.)

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.”

PAID MORE TO STAY HOME. A bill sponsored by the California Professional Firefighters would consume more than a few tax dollars. AB 136 (Kehoe) would actually give firefighters and law enforcement officers more take-home pay if they stay home for up to two years to recover from on-the-job injuries. Existing law allows most disabled safety workers to receive full pay for one year – tax free – while recovering. This bill would make it two years – tax free – and extend the expanded benefit to all cities, counties and fire districts in the state. Not having to withhold taxes means the paycheck would be bigger than if the person were actually working. After the bill cleared the Assembly Insurance Committee earlier this month, The Sacramento Bee, in an April 8 editorial, called it “one of the most irresponsible bills introduced in the Legislature.” The 12-4 vote included the nay of first-term Republican John Benoit of Riverside, a former police officer, sheriff’s deputy and Highway Patrol officer. “ … he understands what injured in the line of duty means,” The Bee said. “He also understands the duty of a legislator to guard the public’s money, particularly in these hard times. Too bad so many of his colleagues don’t.”

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.

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.”

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.”

REPORT CRITICIZES STATE PAROLE OFFICIALS. Last fall, when the Board of Prison Terms asked for 24 more hearing officers to conduct parole revocation hearings, Inspector General Steve White decided to look into the matter. What he found, reported The Sacramento Bee on April 13, was a board that could do its job with about half the officers it already has. Mr. White, appointed to the post by the Legislature, is prohibited by law from discussing the confidential reports his office produced. However, The Bee said it was among the most critical produced by the office. It said the $9 million-a-year board overestimated the number of hearing officers it needs because no one knows exactly how much work they really do.

PUBLIC PENSION BENEFITS

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.”

REPORT: 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.”

FATTER PUBLIC PENSIONS. In a June 19 editorial, The Sacramento Bee stepped up its call for a moratorium on legislation to fatten public employee retirement benefits as it urged defeat of AB 80 (Bogh). The bill would allow firefighters and law enforcement in 20 of the state’s larger counties, including Sacramento, to purchase up to 10 years of extra credit. According to The Bee, the bill would allow a firefighter in San Joaquin County to tack on retirement service credit from employment in a fire department somewhere else. While the employee would have to pay the employee share of the retirement costs, plus interest, The Bee noted that it amounts to far less than the employer – taxpayers – would have to pay. For five years’ service credit in San Joaquin County, the employee would pay $15,552; the county would pay $105,534, according to county calculations. (Note: Governor Davis vetoed the bill, which passed the Assembly 73-0, and the Senate, 21-11, with a message that it would create an unfunded liability for some of the state’s largest counties because the employee contributions would not be enough to fund the additional benefits.)

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.

LOCAL GOVERNMENT

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. CITY PAYROLL GROWS. Despite a tight budget with major fee increases and service cuts, tens of millions of dollars are going to pay raises of at least 5 percent for most Los Angeles city employees in the coming fiscal year, the Los Angeles Daily News reported June 21, 2003. Private sector salaries went up by 3.9 percent last year, and the cost of living in the area grew by 2.1 percent, reported the nonprofit Employers Group, which surveys California companies. Although trash collection fees are proposed to increase 66 percent, to $10 monthly, in the coming year’s budget, Julie Butcher, general manager of the Service Employees International Union, said she would “not apologize for a refuse worker making enough money to buy a little house in Sylmar and send a couple of kids to college. The taxpayers are absolutely getting their worth out of the men who pick up their trash. Even when those fees are going up, people are getting an incredible bargain.” On the other hand, Steven Frates of the Rose Institute of State and Local Government at Claremont College said, “Generally speaking, Los Angeles salaries tend to be toward the high end of the municipal scale. In addition, the city of Los Angeles benefits package, like most government benefit packages in California, is much more lavish than private-sector benefit packages, and costly to taxpayers.”

Take-Home Cars of LA County Employees DOUBLES in Decade. The number of Los Angeles County-owned vehicles that county employees take home at night has doubled in the past decade, the Los Angeles Daily News reported (July 23, 2003). The sheriff has 666 employees, double that of six years ago, who go home on the taxpayer tab with free gas and maintenance, costing $2.3 million a year. A department official, who declined to be named for fear of retaliation, said many are driven by executives who are not required to respond to crimes. He added that only 150 are necessary. Staffs of elected county supervisors drive 67 county vehicles home, up from 45 in 1993.

L.A. Sheriff Junks Handcuffs. About 2,000 sets of handcuffs purchased with taxpayer funds are being tossed out, the Los Angeles Times reported June 10, 2003. Apparently Los Angeles County Sheriff Lee Baca believes the British-made cuffs may cause injuries. Anyone in handcuffs who struggles may be injured, he said. Hiatt and Company, which made the handcuffs, said its products have been used throughout the world without complaints. The handcuffs were purchased between 1989 and 1994 at $14.25 each. Costs to restock will be covered by the sheriff’s existing budget, the office said (although the sheriff is promoting a sales tax increase because he says his department is underfunded).

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.”

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 Purchases 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.

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.

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.”

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.

EDUCATION

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.”

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.

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.”

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.

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.

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.