Los Angeles Dept. of Water and Power – Unions vs. Ratepayers

Where are the charity watchdogs in L.A.? An ugly story from the City of Angels reminds us once again of how dangerous “public-private partnerships” can be, especially that worst of all such partnerships: government employee unions in bed with government officials.

The government of Los Angeles has long granted a monopoly to the Department of Water and Power (DWP), which in turn has long had the overwhelming majority of its workers represented by the International Brotherhood of Electrical Workers (IBEW) Local 18. Partnering against the public at large, the local government pols have enjoyed many millions in campaign donations made possible by the union’s hoovering of dollars from the paychecks of its members, who have little choice in the matter. In return, the pols have granted ever-so-generous paychecks and benefits to the IBEW folks by allowing DWP to charge higher rates than necessary.

Matters became even dirtier in 2000, when the DWP realized it needed to slash its payroll costs (wonder why those were a problem?). To buy the acquiescence of union leaders, who ended up partnering with management against their own members, the DWP apparently offered a deal: It would set up a new “nonprofit” entity, the Joint Safety Institute, to be run by representatives from the union and the utility, who would enjoy a few million dollars a year fleeced from the ratepayers to fuel this hybrid nonprofit – and neither workers, ratepayers, nor pols would quite know where the millions of dollars went.

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Two years later, a second such entity, the Joint Training Institute, would be set up in exactly the same way, with the identical persons on its board. As long as the pols kept quiet about this cozy arrangement, Angelenos heard little about any of this. In fact, the union’s boss, Brian D’Arcy, successfully schemed to have the state government exempt the nonprofits from a law that requires records and meetings to be made public. But a year ago, despite the union bosses’ best efforts to use their members’ dues to buy a new set of compliant pols (IBEW 18 poured $4 million into a losing candidate for mayor), a few officials were elected who vowed to look into these two nonprofit honey pots, which by now have devoured 40 million ratepayer dollars. Give the L.A. Times credit, too, for writing about the situation and turning it into a political football.

All questions of where the tens of millions have gone provoke outrage and obstruction from the union bosses, who continue to fight disclosure in court despite repeated rebuffs from judges.

The two nonprofits do make public their IRS tax filings each year, but those filings tell the public little. As the L.A. Times observes, the filings…

“…show more than $360,000 spent on travel from 2009 to 2011 and nearly $2.4 million spent on “other.”

The groups are legally established, not under the usual “public charity” 501(c)(3) designation, but under 501(c)(6), the designation used by business leagues like the Chamber of Commerce and the NFL. I’m sure that has nothing to do with the fact that (c)(6) groups can spend their money on politics with far fewer restrictions than (c)(3) groups.

Back in January, longtime IBEW 18 boss D’Arcy had a date to sit down with DWP officials and bring them the real books for the two nonprofits, so that a public audit could begin.

But D’Arcy was a no-show that day and instead lawyered up to keep the public’s eyes out of this public-private partnership’s check book (city officials had asked to see what checks for $1,000 or more had been written). The courts to date have repeatedly refused to buy D’Arcy’s argument that this public-private partnership is just like a private company that’s a vendor to DWP, say, a health insurance provider. That’s nonsense, of course, because DWP can change vendors at will, whereas a trust document requires that DWP take money out of every dollar it receives from ratepayers and transmit the cash to the nonprofits.

The situation has deteriorated so badly that D’Arcy, notoriously publicity shy, wrote an L.A. Times op-ed pleading his case and even went so far as to release an internal financial statement and a “report” on each of the nonprofits (available here, here, here, and here).

So, how much real disclosure of spending has he made? Well, the reports give brief blurbs on various contracts the “institutes” have made with outside vendors from 2001 to November 2013. And if you total every dollar figure in the reports, you’ll find out where $ 10.6 million of the total $40 million has gone — or about one-quarter of the loot. Local blogger and CPA Paul Hatfield read the financials and turned up another $11.8 million. That sums sits unused in the cash balances of the two nonprofits:

“This stash of cash is over three times the annual operating expenses, so its purpose must be more than a rainy day fund. Then what is it for? …

Subpoenas should be issued for all the board members as well as the accountants and the trusts’ managers. Make them testify under oath.”

D’Arcy’s reports on the two different joint institutes have duplicate language, suggesting there’s not much difference between them, which begs the question why two were established.

The report on the newer institute doesn’t even have a section labeled “Results,” but its older brother has a brief paragraph with that heading. There one finds the only concrete claim put forward for the value of either nonprofit:

“In 1999 the total number of Lost Workdays at LADWP was more than 15,000, equating to nearly 70 employees off work every day due to work-related injury or illness. By 2005, that number had been reduced to less than 5,000 Lost Workdays.”

While a drop in injury and illness is obviously a good thing, one wonders why the last year cited in the statistics is almost a decade past? Have any results occurred in the past 18 nonprofit-years of the two groups’ work?

Then there’s the question of whether the nonprofits had much to do with the old improvement. Even D’Arcy’s report admits that the group…

“…cannot take credit alone for such improvement, but it is widely believed that the focus, drive and partnering effort the JSI provides has been a major part of that change.”

Actually, it is not all that “widely believed.” Joseph Tsidulko of LA Weekly retorts:

“DWP already expends $127 million a year conducting in-house training of its workers, including millions on employee-safety programs.”

Speaking of the LA Weekly, it first exposed these nonprofits in 2005, when they’d already made $12 million disappear, and more recently it reported on how the IBEW’s nemesis, the newly elected Mayor Eric Garcetti, has played along for years as a city council member who had no desire to upset the IBEW or its public partner, the DWP.

So, to review the bidding, we’ve got tens of millions of ratepayer dollars going for over a decade into a murky sinkhole with a crude sign over it labeled “Nonprofits at Work.”

Following a classic pattern, the union bosses involved never showed much concern for members who were going to lose their jobs, largely because of the excessive wages and benefits the bosses demanded the company pay. Nor did the union bosses shed a tear for (a) the many workers who would never get a job in the first place, thanks to the high costs of hiring new workers, or (b) the poor and middle-class citizens served by the DWP, who were paying significantly more for their basic utilities than they should have. No, the bosses just focused on helping themselves and ensuring that any remaining union members would have outsized compensation.

How outsized? Well, DWP personnel who aren’t laid off enjoy an average salary of over six figures, as well as $17,000 per year in health insurance, an amount 50% to 70% higher than other city workers. Plus a few lucky union and DPW officials supplement their pay with the million dollars a year the two nonprofits pay their staff.

It would have been nice if charity watchdogs had barked over this mess earlier (Nonprofit Quarterly did run one item last November). And it would be even nicer if left-of-center folks in and out of the nonprofit sector could admit that a lot of money is wasted, and the poor oppressed, by government officials in bed with government unions (Rick Cohen, my friend, call your office).

Let’s give the last word on this public-private partnership to Steve Lopez of the L.A. Times:

“With DWP, it’s always about power and politics, with D’Arcy having had his way for years, bankrolling political candidates who showed their love by delivering spectacular contracts in return, making D’Arcy one of the most powerful players the city has ever known. D’Arcy bet wrong last year, throwing millions behind Wendy Greuel for mayor, and now he’s trying to prove he won’t be pushed around just because of a bad bet.

Let’s not let City Hall off the hook, though, because D’Arcy would be powerless if not for it. Mayor and former councilman Eric Garcetti didn’t stand in the way of D’Arcy’s power grabs over the years. And as this paper has reported, Garcetti’s appointment of a new DWP assistant GM who was involved in a financial scandal years ago while overseeing DWP, and was also there when the nonprofits were established, is a head-scratcher.

Business and politics as usual in L.A.”

FOOTNOTE: Perhaps the worst public-private partnership of all time involved groups that helped cause the housing collapse that launched the Great Recession, a topic I wrote about here. For more on the outrages involving IBEW 18, read the coverage provided by CityWatch.

About the Author: Scott Walter is executive vice president of the Capital Research Center in Washington, D.C.  This post originally appeared in Philanthropy Daily and is republished here with permission from the author.