A Balanced Plan To Fix LA 1 May 5, 2014
What is the Coalition? Formed in 2005-06 22,000 City workers represented 65% of the Civilian workforce 55% of our workers are Special Funded Policy partner with City above and beyond traditional labor relations Drove savings costs with City when Wall Street crashed the economy 2 Your footer comes here Your date comes here
Coalition Savings The Coalition Partnered with the City during and after the Recession and agreed to unprecedented cost savings in the form of: 1. Reduction of the City workforce through ERIP and attrition, paid for by Union members 2. FLEXCARE plan design changes 3. Increased Employee Pension Contributions 4. Delayed Increases 3
Millions ERIP and Hiring Freeze Savings $500 $450 $400 $350 $300 $250 $200 $150 $100 $50 $0 Estimated Annual Savings to City Taxpayers $456 $462 $472 $415 $356 2010-11 2011-12 2012-13 2013-14 2014-15 4
Millions Early Retirement Incentive Program -$17 Estimated Total Annual Cost to Employees -$17 -$18 -$18 -$17.8 -$18 -$18 -$18 -$18.3 -$18.2 -$18.5 -$19 -$19 -$19 -$18.8 2010-11 2011-12 2012-13 2013-14 2014-15 5
Millions FLEX Benefits Plan Design Reductions $45 $40 $35 Coalition Driven Civilian Healthcare Savings $38.8 $30 $25 $20 $25.0 $15 $10 $5 $0 $9.7 Coalition Agreement Goal 2 Calendar Years FLEX Citywide Savings Coalition Savings Share (65% of workforce) 6
Millions 6% to 11% Pension Contribution $76 Estimated City Savings and Coalition Member Cost $75 $75.3 $74 $73 $72 $73.3 $72.8 $73.9 $71 $71.3 $70 $69 2010-11 2011-12 2012-13 2013-14 2014-15 7
Non-Health Benefit Rates Per Employee 90.00% 80.00% 70.00% 2014-15 Add/Delete Rates By Employee Type 80.00% 60.00% 50.00% 40.00% 47.94% 30.00% 20.00% 28.06% 10.00% 0.00% DWP Rate Sworn Rate Civilian Rate 8
Austerity, Services, and the 2014-15 Budget Ryan Hudson, M.P.P. Research and Policy Analyst SEIU Local 721 9
Cubic Yards Austerity Impacts 250,000 Street Services: Debris Removed 200,000 150,000 100,000 50,000 0 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 10 Source: Comprehensive Annual Financial Report For The Year Ended June 30, 2013
Millions Square Feet Austerity Impacts 25 Street Services: Land Cleared 20 15 10 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 11 Source: Comprehensive Annual Financial Report For The Year Ended June 30, 2013
Total Austerity Impacts 140,000 Street Services: Trees Trimmed 120,000 100,000 80,000 60,000 40,000 20,000 0 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 12 Source: Comprehensive Annual Financial Report For The Year Ended June 30, 2013
Hours of Traffic Control Austerity Impacts 100,000 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 Transportation: Intersection Traffic Control 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 13 Source: Comprehensive Annual Financial Report For The Year Ended June 30, 2013
Total Austerity Impacts 150,000 Transportation: Abandoned Vehicles Abated 130,000 110,000 90,000 70,000 50,000 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 14 Source: Comprehensive Annual Financial Report For The Year Ended June 30, 2013
Total Austerity Impacts 120,000 110,000 100,000 Sanitation: Flood Control Catch Basin Cleaning 90,000 80,000 70,000 60,000 50,000 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 15 Source: Comprehensive Annual Financial Report For The Year Ended June 30, 2013
Millions City Spending $500 $400 $300 $200 $100 $0 -$100 -$200 Average Yearly Change in Governmental Activity Appropriations Pre vs. Post Recession $451 -$102 2004-2008 Average Growth Rate 2009-2013 Average Growth Rate 16 Source: Comprehensive Annual Financial Report For The Year Ended June 30, 2013
Millions City Spending $1,000 $900 $800 $700 $600 $500 $400 $300 $200 $100 $- Capital Spending $935 $641 $491 $524 $363 $353 2008 2009 2010 2011 2012 2013 17 Source: Comprehensive Annual Financial Report For The Year Ended June 30, 2013
Millions The General Fund The General Fund at Year-end $350 $300 $250 $200 $150 $100 $50 $0 -$50 18 Source: Comprehensive Annual Financial Report For The Year Ended June 30, 2013
Millions General Fund Liquidity $400 Total Cash Available for Discretionary Appropriation in the General Fund $350 $367 $300 $250 $200 $215 $222 $225 $254 $273 $150 $100 $50 $0 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 19 Source: Comprehensive Annual Financial Report For The Year Ended June 30, 2013
Short Term Revenue Opportunity Fine Banks for Neighborhood Negligence We remain puzzled why the city has never enforced a neighborhood nuisance law that would have allowed it to collect tens of millions from Wall Street banks that failed to maintain foreclosed houses and thus contributed to neighborhood blight. We suggest a public inquiry and that the city begin enforcement now. 20
80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% Long Term Revenue Opportunity Fix the Unfair Decline in Commercial Property Taxes Trends in the Total Share of Property Tax Payments 1975-2013 0.0% 1975 1980 1985 1990 1995 2000 2005 2010 2013 Commercial Residential Commercial Trend Residential Trend 21 Source: Los Angeles County Assessor Annual Report 2013
Strengthening Revenues Calculations by the Coalition project the City would collect between $129 million and $280 million annually in discretionary revenues General Fund revenues of this magnitude would allow the City to move away from its austerity position and reinvest in Los Angeles Communities 22
A New Conversation About Wall Street Lisa Cody, A.B.D. Research and Policy Analyst SEIU Local 721 23
Lack of Transparency Total Fees Wall Street 24
Breakdown of Wall Street Fees for 1 Year Finance Counsel Fees, Dealer Fees, etc. $4,400,000 Bank & Processing Fees $7,900,000 Swap Payments $4,800,000 Letters of Credit $17,900,000 Natural Gas Forward Contracts $23,100,000 Investment Management Fees $133,100,000 Bond Issuance $12,900,000 $204,100,000 Performance Fees on Private Investments? 25
Update on Fees $10.1 million more in banking & processing fees for a total of $18 million Estimates of Missing Fees City Treasurer invests $7 billion assets Estimated conservatively a fee of.15% of total assets managed bringing the total to $143.6 million Used investment reports from private equity and hedge fund firms to estimate total fees paid as a percentage of assets management fees plus performance fees Estimated performance fees paid per year by three Pension Funds $75.9 million 26
What are Performance Fees? Profit 80% to Investors (e.g., LACERS) 20% to Fund Manager (e.g., Apollo) 27
28 Private Equity Example Apollo Performance Fees Dwarf Management Fees
Estimating Performance Fees Paid by Pension Funds Three Private Equity Firms Apollo Fees 6% of Assets Managed KKR Fees 3.17% of Assets Managed Blackstone Fees 2.65% of Assets Managed Average Percentage Applied to Pension Funds Management and Performance Fees cost 3.94% of Private Assets Managed ($3.1 billion) Estimated Performance Fees for Pension Funds = $75,890,943 29
Areas To Explore For Savings Bank & Processing Fees $18,000,000 Swap Payments $4,800,000 Letters of Credit $17,900,000 Investment Management Fees (All Types) $143,600,000 $300,390,943 Performance Fees on Private Investments $75,890,943 30
Area of Potential Savings Bank & Processing Fees Bank & Processing Fees $18,000,000 $300,390,943 31
Credit/Debit Processing Fees Comprise 82% of that $18 Million Credit/Debit Processing Fees $14,760,000 $18 Million Bank Service Fees $3,240,000 32
Opportunity to Reduce Processing Fees Opportunity to terminate current contract in 2016 City should begin exploring options now either to release a new RFP to select a more competitively priced vendor or to renegotiate with current vendor Propose that the Council expand the report back in Exhibit H directing the Office of Finance to review credit card transactions and opportunities to renegotiate costs for the entire City, not just for parking meters Reducing the City s costs by one-third (of $14.76 million) would result in a savings of $5,000,000 per year 33
Potential Savings $5,000,000 Bank & Processing Fees $13,000,000 $295,390,943 34
Potential Savings Swap Payments Swap Payments $4,800,000 $295,390,943 35
What is Wrong with these Swaps? City entered into swaps expecting to save $3.5 million per year Financial Crisis changed nature of assumptions upon which those deals are based Instead of saving money, the City will pay NY Mellon Bank and Dexia $4.8 million per year until 2028 In 2012, City paid these banks $26.1 to terminate portions of these toxic swaps NY Mellon and Dexia are reaping a windfall at taxpayers expense 36
Renegotiate Swaps with NY Mellon and Dexia with NO PENALTY New York Mellon Bank and Dexia need to either step up to the plate or need to be told to step away. If NY Mellon and Dexia refuse, the City should end all current business and exclude them from any future business Council should request that the City Attorney investigate whether the City has grounds to terminate or renegotiate the swaps based on new Dodd-Frank Rules Potential savings include $4.8 million per year until 2028 that is a savings of over $69 million 37
Potential Savings $4,800,000 Swap Payments $0 $290,590,943 38
Potential Savings Letters of Credit Letters of Credit $17,900,000 $290,590,943 39
Use Government Entities to Provide Letters of Credit Government Entities Earn Money Tens of millions each year with near-zero risk Letters of Credit are insurance policies on debt no money leaves the government entity unless the city defaults on its debt, which has never happened City Saves Money If government entities charged the City 1/3 less than it pays Wall Street now, the City would save $5,900,000 per year Wall Street banks would be left out of this business 40
Potential Savings $5,900,000 Letters of Credit $12,000,000 $284,690,943 41
Potential Savings Investment Management and Performance Fees Investment Management Fees $143,600,000 $284,690,943 Performance Fees on Private Investments $75,890,943 42
Renegotiate Fees and In-source Investment Management Aggressively renegotiate fees when using outside investment managers In-source financial advisors and private equity and hedge fund investment managers With 10% reduction in total fees City would save $22,000,000 per year 43
Potential Savings $22,000,000 Investment Management Fees $129,240,000 $262,690,943 Performance Fees on Private Investments $68,301,848 44
Proposed Total Savings $37,700,000 $300,390,943 $262,690,943 Total Fees Total Fees After Savings 45
Quality Jobs And City Efficiencies Molly Rhodes, Ph.D. Research and Policy Analyst 46
Economic Development Basic: Public Sector Employs 25% of Angelenos Management, scientific & technical consult. srvcs. 47 Management of companies and enterprises Colleges, universities, and professional schools LA Metro NAICS Industry (In thousands) Investigation and security services Legal services Depository credit intermediation Federal Government Grocery stores Offices of physicians Employment services General medical and surgical hospitals Motion picture and video industries Private Household Workers High-tech employment Restaurants and other eating places State & Local Government 46 47 48 48 48 56 57 75 79 94 104 114 151 170 280 509
Wall Street says our job losses hold back LA s economic recovery Total payrolls advanced but local government job cuts tempered the gains. City of Los Angeles = Biggest Employer Local and federal spending and payroll cuts remain a near-term risk making Los Angeles an average performer. 48 Moody s December 2013 Report Card
City Job Creation: Temporary Conditions Animal Service Licensing Canvas program Exploitation Building and Safety Clerks Trash Truck drivers DOT Crossing Guards DOT Parking Enforcement 49
50 Let BOSS Fix our trees, sidewalks
LAPD Civilians: Depletion of Critical Civilian Staff 1200 1000 800 600 400 200 0 2008-09 2009-10 2013-14 2014-15 Administrative Staff 911 Operators 51
Jail Civilianization: Right Worker for the Right Job $150,000 $100,000 $50,000 $0 Budgeted Cost for a Jail Detention Officer: Civilian vs. Sworn Starting Salary Healthcare Cost Benefit Cost Total Budgeted Cost Detention Officer (271 budgeted) Police Officer II (4,780 budgeted) 52
Save money on Workers Comp: Alternative Dispute Resolution Program In litigation cost next year. Or ZERO. 53
54 Managed Hiring: BOSS example
Thank you to the B&F Committee for hearing our L.A. observations 55 Your footer comes here Your date comes here