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New Report Confirms LA Dept. Water and Power Compensation Highest in Nation

Phase I of a comprehensive benchmarking report on the LADWP was just released by the City of Los Angeles.

The report itself confirmed a few things most ratepayers already know – that the LADWP’s payroll costs are dramatically higher than that of their peers and their customer service is quite poor. Previously, in my study, Examining Public Pay in California: The Los Angeles Department of Water and Power, I found that DWP employees are receiving an average compensation premium of 155% as compared to their private sector counterparts:

20150318-CPC_Fellner_LADWP-5

The City-commissioned report compared the LADWP to utilities of a similar size, both nationally and regionally, and analyzed a host of factors beyond just payroll. It found that spending on customer service was below average for the power agency and above average for the water system; but both “continue to rank last among their peers in customer satisfaction.”

Several immediate action items were recommended, the first being recommendations to improve customer service. The others were focused on two additional areas the LADWP placed last in – high amounts of electricity lost in transit and lost revenue due to an inability to collect unpaid debts.

The report found positives too. While rates are very high on a national scale, they are in line with their regional counterparts. Obviously, the proposed rate increases in the coming years will impact this ranking. Reliability scored well and total costs were in the 2nd quartile compared to their peers, thanks to savings in areas such as in customer service and generation.

Unfortunately, the Mayor’s Office press release announcing the findings of this report appeared more concerned with highlighting the good, while omitting the bad. In fact, the release states that the LADWP ranked in the 1st quartile in operating costs, when in fact they were ranked in the 2nd. Not a word was devoted to their bottom scores in the items mentioned above or the enormous savings that could come from payroll reductions to a level that would match that of their peers.

As seen in the image below (bottom text is my own) if the LADWP were merely to reduce payroll expenditures to be in line with other utilities, let alone the massive savings from reducing pay to the market avg, they would save over $320M a year.

20150325_UW_Fellner_LADWP-1

This is troublesome because it would suggest that the Mayor’s Office is more concerned with painting the LADWP in a positive light, as opposed to acting in the best interest of the ratepayers. Particularly given future rate increases are planned as early as this spring, ratepayers are in desperate need of an advocate that acknowledges these rate increases are mostly to support excessive LADWP pay.

The LADWP ranked in the bottom quartile in terms of payroll spent on administrative staff, while ranking favorably (meaning spending less) for customer service.

20150325_UW_Fellner_LADWP-2

Naturally, pay reductions should occur for all LADWP employees to a level that is less obscenewhen compared to their LA area counterpart. For example, the average customer service rep’s pay could be reduced to “only” 40% above the market average of $60k a year, as opposed to the current $72k avg.

Given the LADWP is overweight in the administrative sector and underweight in the customer service department, this would allow for both an improvement of operations and savings for the ratepayers at the same time by reducing administrative staff and replacing them with the less expensive, and more needed, customer service reps.

While it is likely an increase in hiring for customer service reps will occur, a reduction in pay or total administrative staff will be much more difficult. Unfortunately, this is exactly what is needed to reduce the growing burden on ratepayers – who need to make sure their interests are being put first by City Hall.

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About the Author:  Robert Fellner is Research Director for TransparentCalifornia.com, a joint project of the California Policy Center and the Nevada Policy Research Institute. Fellner recent completed an in-depth analysis of Los Angeles Dept. of Water and Power rates of pay in his study entitled “Examining Public Pay in California: The Los Angeles Department of Water and Power.”

Examining Public Pay in California: The Los Angeles Department of Water and Power

Summary:  The Los Angeles Department of Water and Power (DWP) is the nation’s largest municipal utility, but it may also be one of the clearest examples of excessive public pay driven by powerful public sector unions. This paper analyzes the pay received by DWP employees to their non-DWP counterparts and finds that the average DWP employee receives total compensation that is 155% greater than their non-DWP counterpart.

The largest premiums are found in generic jobs such as custodians, garage attendants, security officers, and the like. The average DWP security officer, for instance, makes 288% more than a non-DWP security officer working in the Los Angeles Metropolitan area. Overall, the weighted average wage premium for DWP employees performing generic jobs was 90% over their counterparts in the Los Angeles area. For all jobs, and including the value of benefits such as pensions and employer paid health insurance costs, the premium for DWP employees as estimated to be 155% higher – that is, 2.5 times as much – than for employees performing work with similar job descriptions in the Los Angeles area.

Applying these premiums to the number of employees at the DWP, the total cost to rate-payers of the DWP paying above market wages is estimated to be $392.8M a year.

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INTRODUCTION

The issue of comparing public pay to private pay has challenged academics and sparked fierce debate for years. A serious gap in the academic literature was filled by Andrew Biggs and Jason Richwine’s groundbreaking paper, Overpaid or Underpaid? A State-by-State Ranking of Public-Employee Compensation. Biggs and Richwine found that California State employees receive a total compensation premium of 33% versus their private sector counterpart. Given the scope of their paper, their analysis was limited to state employees only.

However, roughly 90% of all public employees in California work for local agencies. Further, state employees are paid less in wages and receive less generous benefits than local public employees do, suggesting that the bulk of public employees in California receive compensation greater than the 33% premium found at the state level. This paper is the first in a series that will analyze the level of pay for individual public agencies in an attempt to fill this gap.

The Los Angeles Department of Water and Power (DWP) is the nation’s largest municipal utility, serving over four million residents. It is also a powerful example of the above market wages received by California’s public employees. The DWP made national headlines in 2012 and 2013 when Bloomberg reported that their garage attendants were making nearly four times the national average. The Los Angeles Times found that the average total pay for DWP employees was over $100,000 in 2012, approximately 50% higher than other city employees. With recently published 2013 data available on TransparentCalifornia.com, this analysis will update and expand upon the Times’ previous findings.

First, DWP pay is compared to the market in general, as represented by the Bureau of Labor and Statistics (BLS) average wage for the same or similar job, not merely to other government agencies. Secondly, the weighted average of the pay premium found is used to project the total cost associated with the systemic practice of paying above market wages for the department as a whole.

Finally, the value of retirement and health benefits provided to the DWP employee are contrasted to the comparable retirement and health benefits received by a non-DWP employee.

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METHODS

The methodology used is known as the “positions approach” in the economics literature. This approach searches for matching job descriptions and then compares the pay between each. Adjusting for the traits of the underlying people holding the position, also known as the human-capital model, is not utilized. Given the extremely narrow focus of this paper to a single agency in a specific region, as opposed to a state or nation-wide analysis, the “positions approach” is sufficient.

Additionally, the singular focus allows for findings that are based on the actual wages paid, not an estimate based off of a regression analysis.

The DWP employs just over 10,000 people. However, this paper only analyzes employees who worked for a full-year by eliminating any employee with a base salary less than the reported annual salary minimum, leaving 8,318 full-time, year-round employees in 2013.

Twenty-three DWP job titles were selected for analysis, accounting for a total of 3,476 employees. This sample size represents 42% of 2013 full-time, year-round employees and 39% of total payroll expenditures. Job titles were selected by the degree of total employment they represented as well as the ability to reasonably identify a corresponding job title in the BLS report. While identical or similar job title names served as a starting point, the determination in matching a DWP job title to a corresponding BLS title was made entirely on whether or not the job description and responsibilities reasonably corresponded to each.

Modifications were made in the following two cases. First, while the DWP job of customer service representative correlated to the BLS job of the same name, the required skills and job responsibilities for the DWP position appeared much higher than average. Consequently, the corresponding BLS wage was increased to the BLS 75th percentile wage.

A similar adjustment was made for the job of “senior clerk typist.” The DWP job description for both “clerk typist” and “senior clerk typist” correlated to the BLS job of “office clerks, general.” The BLS average wage was used as the comparison for the DWP job of “clerk typist” and the 90th percentile wage was used for the comparison against the DWP’s “senior clerk typist” position.

An appendix listing the exact comparisons made is included at the end of the paper. The analysis was able to incorporate the seven most populated job titles held within the DWP, along with 16 additional job titles of various sizes.

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COMPENSATION COMPARISONS

Regular Pay

The DWP wage is compared to the average wage for the same or comparable job as reported in the May 2013 wage estimates by the Bureau of Labor and Statistics for the Los Angeles Metropolitan area.

The BLS wage does not include overtime pay, but does include a variety of additional pays such as longevity, hazard, and incentive pay. As such, only the DWP wages without overtime pay (Regular Pay) should be considered as analogous to the BLS wage. Regular Pay is defined as base pay plus the multitude forms of routine “other pay” that DWP employees receive. In 2013, the average non-OT earnings (Regular Pay) of a DWP employee were $99,900.

 Table 1  –  Average DWP Regular Pay vs Average BLS Wage by Job Title

20150318-CPC_Fellner_LADWP-1

Overtime Pay

Overtime pay was excluded from this analysis to create parity between the DWP wage and BLS estimates. However, the DWP provides overtime pay at a higher rate than even firefighters or police, which casts serious doubts about the management structure and the necessity of the overtime pay issued. Including overtime pay increases the average 2013 total earnings of a DWP employee by 15% – to $114,941.

Additionally, an incomprehensible 92% of DWP employees receive overtime pay of some kind. The Los AngelesTimes discovered at least one particular example which confirms that at least some of the overtime pay is the result of union-friendly contracts, not necessity, when they revealed that DWP employees receive overtime pay for work that an outside contractor performs. This bears repeating: DWP employees can receive overtime pay for work that others do. Such a provision is unheard of in typical labor contracts, according to the expert cited in their article.

Despite the fact that the overtime pay at the DWP is at least partially excessive and not reflective of a genuine staffing need, it is impossible to quantify the proportion that is driven by abuse, as compared to that which is driven by legitimate need. Consequently, overtime pay is omitted from this comparison. Still, it must be noted that the average DWP employee receives a non-trivial benefit, averaging 15% in 2013, from the department’s atypically generous overtime policy.

A 90% pay premium for regular jobs

Many of the jobs with the smallest degree of DWP premiums are likely due to the fact that the DWP essentially is the market for that position in the Los Angeles Metropolitan area. Electric distribution and electrical mechanics and their comparable BLS job titles (listed in the Appendix) are jobs unique to a utility company. Obviously the DWP is, by far, the largest utility in the Los Angeles Metropolitan area. Consequently, the BLS comparable wages are going to be overwhelmingly represented by DWP employees, making a comparison less meaningful.

To have a more accurate picture of the above market wages paid by the DWP it is necessary analyze generic jobs that have a robust, non-DWP market such as custodians, security officers, and the like. When filtering for jobs not unique to a utility company, the Regular Pay received by a DWP employee is 90% greater than the market average.

Table 2  –  Average DWP Regular Pay vs BLS Wage for Generic Jobs Only

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Benefits

It is well documented that public sector defined benefit plans provide more generous benefits than a defined contribution plan; typically the public employee shares in the cost of funding this plan to some extent. In CalPERS, for instance, many public employees pay half of the required contribution rate, which can range from 10-30% of salary, depending on the individual employing agency.

DWP employees, however, participate in their own pension plan and contribute only a maximum of 6% of salary towards their defined benefit plan, with earlier employees paying even less than that. While the DWP plan offers benefits slightly lower than CalPERS in absolute terms, the ability to receive these benefits at a reduced cost to the employee greatly increases the net value of the DWP pension plan.

However, most employees, particularly private employees, participate in a defined contribution plan, which is vastly less generous than the defined benefits plans California’s public employees participate in. A comparison to the type of benefits typically received from a contribution of 6% of salary is illustrative in that regard.

Given private employees must contribute 6.2% of their salary in Social Security taxes, any 401(k) style matching retirement benefits available to the non-DWP employee are only available if they incur an additional cost. Consequently, the following will compare the retirement benefits available based on the assumption that each employee is contributing the same level of salary (6%) towards their retirement.

Take, for instance, the average DWP custodian receiving an average base pay of $52,734 vs. the BLS average wage of $26,810. Many custodial positions outside of the DWP are hourly and do not offer benefits of any kind. However, the DWP custodian receives employer-paid medical benefits and is enrolled in a “2.3% @ 55” defined benefit plan. Assuming the DWP custodian retires at the age of 60 with 30 years of service, they will begin receiving an annual pension of $36,386. By contrast, the private sector custodian will not be able to receive anything from Social Security until the age of 62, at which point they will receive a yearly benefit of $8,880 based on a wage of $26,810.

Using an average life expectancy of 85, a discount rate of 3.75%, and an annual Cost of Living Adjustment (COLA) of 2%, the net present value of the DWP custodian’s pension benefit is $706,841. The net present value of the non-DWP custodian’s Social Security benefit is $161,250. This represents a retirement benefit for the DWP employee nearly 340% greater than that of what their non-DWP counterpart can expect to receive, despite having contributed the same percentage of salary towards their retirement plan.

The wages used to compute the DWP’s pension are base salary only and do not include the various forms of “other pay” that are included in Regular Pay for the salary comparisons done above.

The table below displays the results of the same analysis for five of the most populated job titles in the DWP.

Table 3 – Net Present Value of Avg Full-Career DWP
Retirement Benefit vs Comparable Social Security Benefit

 20150318-CPC_Fellner_LADWP-3

While it may seem initially counterintuitive that the largest pension premium is not found in the position with the largest wage premium, it makes sense when you remember there is a cap on the maximum Social Security benefit. As such, the key driver is the absolute value of the wages used for the DWP employee.

The comparison in Table 3 assumes an employee had worked 30 years and retired at the average wage reported, which is unlikely. Granted, this weakness applies to both sides equally in that both the DWP and non-DWP employee would likely retire at a higher wage than the average. Still, it is sufficient to illustrate the enormous disparity in pension benefits offered to DWP employees in relation to the cost of an annual contribution of no more than 6% of salary.

Total Compensation Premium

An alternative and more robust measure of comparison would be to calculate the value of employer-paid benefits as a percentage of annual wages.

To do so, we rely on the model pioneered by one of the nation’s leading experts on public sector pay and pensions, Andrew Biggs. An explanation as to how we calculated the value of the DWP’s defined pension benefits can be found starting on page 26, with an explanation on how we treated the value of the Social Security benefit beginning on page 40. The most pertinent section is reprinted below:

“To calculate pension compensation paid from state government pensions, we must convert normal costs as published by those plans to a measure using risk-appropriate discount rates. To do so, we gathered data on over 20 plans from California, Florida, Colorado, Washington, and Rhode Island in which pensions’ own actuaries have calculated pension costs under different discount rates. The median result indicates that a 1 percentage point reduction in the discount rate raises the normal cost of a plan by around 36 percent. As a check, we performed our own calculations using workers stylized to be typical of state government employees, which produced similar results.

The factor to convert a normal cost would equal 1.36(re – rra), where re equals the expected return on plan assets and rra the risk-adjusted discount rate. For instance, the factor to convert a normal cost calculated at 8 percent to a 4 percent discount rate would be 1.364, = 3.42. From this risk-adjusted total normal cost we subtract the value of employee contributions to arrive at net pension compensation. For instance, a plan with a total normal cost of 10 percent of wages at an 8 percent discount rate would have a normal cost of 34.2 percent of pay using a 4 percent discount rate. If the employee contributes 5 percent of pay to the plan, his net pension compensation would be equal to 29.2 percent of wages.”

In a nutshell, public pension systems understate the true cost, and value, of their benefits by using an inappropriately high discount rate in their actuarial calculations. Experts from the Congressional Budget Office, Federal Reserve Board, federal Bureau of Economic Analysis, Moody’s Investment Services, and across academia agree that an appropriate discount rate is one that matches the risk characteristics of the benefit (sidebar 1.)

The most commonly used discount rate for benefits that have little to no risk is the yield on a 20 year Treasury. Currently, the 20 year Treasury rate is at historic lows in the low 2 percent range. Therefore, we will again follow Biggs’ lead and use 4 percent as our discount rate, roughly the average yield over the past decade of a 20-year Treasury.

The DWP pension plan has a normal cost of 23.85% of wages (page 12.) The plan also uses a discount rate of 7.5% for its actuarial calculations (page 40.)  However, given the DWP’s pension benefits are guaranteed, and thus have no risk, it is necessary to adjust this cost to a 4 percent discount rate for the reasons outlined above. This represents a discount rate reduction of 3.5%. Per Biggs, every 1 percent point reduction increases the normal cost of a plan by around 36%. Therefore, the factor to convert to a risk-adjusted total normal cost would be 1.363.5,= 2.93. Multiplying 2.93 by the normal cost of 23.85% = 69.96%. After subtracting the contribution rate for DWP employees of 6%, the net pension compensation is worth 63.96% of wages.

For health benefits, the DWP’s 2013 payroll report stated the average cost per employee was $16,230. Therefore the total compensation for the DWP employee is: (Regular Pay * 1.6396 + $16,320.)

For the BLS counterpart, data from the BLS Employer Costs for Employee Compensation (ECEC) Survey was used to estimate the cost of employer-paid health insurance at 11% of wages. The total cost of Social Security and employer contributions towards a matching 401(k) was estimated at 9% of wages, also using data from the ECEC Survey. The formula for BLS Total Compensation is: (BLS Wage * 1.2.)

The chart below is a graphical representation of the total compensation premium for 10 of the most heavily populated positions in the DWP. Table 4 documents the total compensation premium found for all job titles analyzed in this paper. The average DWP employee receives compensation that is 155% greater than their non-DWP counterpart.

  20150318-CPC_Fellner_LADWP-4

 

Table 4  –  Total Compensation for DWP Employee vs. BLS Counterpart

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LIMITATIONS

This paper is limited in that no attempt to compare the value of retiree health benefits, fringe benefits, or job security is made. However, it is extremely likely that doing so would only inflate the compensation premium already found.

These benefits, particularly things like job security, a generous (unlimited until mid-2013) sick day policy, and so forth are all extremely likely to weigh in favor of the DWP employee.

Another limitation was that many jobs in the DWP do not have a meaningful non-DWP counterpart in the Los Angeles area. Most notably, the jobs of “Water Utility Worker” and “Electric Station Operator” were omitted, despite being the eighth and ninth most populated jobs in the DWP, given the lack of a suitable BLS counterpart.

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THE COST TO RATE-PAYERS

In order to project the total cost estimated with the DWP’s routine policy of paying above market wages, it is necessary to look at the actual dollar cost found as a percentage of total payroll.

For instance, the actual total cost of the pay premium received by the 3,476 DWP employees analyzed in this paper was: $116,668,950. This number was created by multiplying the difference between the BLS wage and the DWP Regular Pay by the total number of employees for each job title, as displayed in Table 1.  After which, one can simply sum the actual cost found for each of the 23 job titles for a total cost.

The total non-OT payroll for these employees is $323.8 million. As such, the total pay premium found represents 36.02% of payroll. If we assume these findings hold true for the rest of the DWP, the total cost can be estimated by multiplying the total (including PT employees) non-OT payroll of $927.6 million by 36.02% for a total cost of $334.1 million.

Further, the savings associated with reducing pay to the market average would expand beyond the immediate reduction in payroll expenditures; as doing so would simultaneously reduce the cost of pension benefits.

The DWP estimates their total normal cost for 2014 to be 17.56% of payroll (page 12.) As a result, every dollar reduction of payroll would save the DWP an extra 17.56 cents in pension contributions.

Assuming the DWP was to pay market wages, the total savings would rise to $392.8M when including the savings from the reduced pension contributions.

New Salary Contract

The public pressure from the Los Angeles Times’ exhaustive work in exposing the DWP’s unlimited sick day policy, overtime pay abuse, and high levels of pay led to a new contract being signed in late 2013.

Revealingly, the “concession” by the DWP only further demonstrates the power of their union. The deal slightly reduced benefits for new hires only; salaries were not reduced at all. Current employees received no benefits or pay reduction of any kind and merely saw their yearly base salary raise delayed until 2016.

As mentioned above, the DWP employee receives over 600 forms of other pay beyond their base salary, not to mention overtime pay that accounted for an average 15% increase in total earnings in 2013. The deal did not touch any of these forms of pay.

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CONCLUSION

The above analysis makes clear the DWP’s primary motivation in setting employee compensation is political in nature – specifically, to accommodate the union and its members at the expense of ratepayers.

Particularly alarming is that the DWP is funded via what amounts to a regressive tax by being able to set the cost of water and power for their over 4 million customers. Consequently, Los Angeles area residents are being forced to subsidize lavish compensation packages that dwarf their own incomes.

The theoretical case against public sector unions is strong, with many of the Left’s greatest heroes having previously warned of the danger and impossibility of collectively bargaining with the public at large. The DWP offers a specific, real-world example of just how egregiously public sector unions can enrich themselves at the expense of the public.

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About the Author:  Robert Fellner is Research Director for TransparentCalifornia.com, a joint project of the California Policy Center and the Nevada Policy Research Institute.

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APPENDIX

Please click here to go to the BLS’ Los Angeles Metropolitan Area May 2013 overview page, which contains the wage estimates listed below. Clicking the link for the individual job titles provides a description of the job’s duties and responsibilities, but wage data on a national level only.

DWP Job TitleBLS WageBLS Job Title
Senior Clerk Typist$45,960Office Clerks, General (90th percentile)
Customer Service Representative$44,800Customer Service Representatives (75th percentile)
Electric Distribution Mechanic$97,210Electrical Power-Line Installers and Repairers
Electrical Engineering Associate$61,530Electrical and Electronics Engineering Technicians
Electrical Mechanic$88,680Electrical and Electronics Repairers, Powerhouse, Substation, and Relay
Civil Engineering Associate$62,080Civil Engineering Technicians
Security Officer$26,640Security Officers
Meter Reader$46,930Meter Readers, Utilities
Custodian$26,810Janitors and Cleaners, Except Maids and Housekeeping Cleaners
Heavy Duty Truck Operator$42,210Heavy and Tractor-Trailer Truck Drivers
Clerk Typist$31,350Office Clerks, General
Electrical Engineer$110,620Electrical Engineers
Secretary Legal$54,010Legal Secretaries
Plumber$65,350Plumbers, Pipefitters, and Steamfitters
Air Conditioning Mechanic$54,690Heating, Air Conditioning, and Refrigeration Mechanics and Installers
Truck Operator$42,210Heavy and Tractor-Trailer Truck Drivers
Civil Engineer$95,250Civil Engineers
Custodian Supervisor$42,210First-Line Supervisors of Housekeeping and Janitorial Workers
Garage Attendant$29,175Approximated this value*
Mechanical Engineer$98,330Mechanical Engineers
Management Analyst$90,040Management Analysts
Maintenance and Construction Helper$44,930Helpers, Construction Trades, All Others
Mechanical Engineering Associate$62,520Mechanical Engineering Technicians

*The BLS reported a mean wage of $21,320 for a parking lot attendant. However, the Garage Attendant for the DWP entails additional non-skilled auto mechanic responsibilities and the wage was increased to reflect that by averaging the wage for a parking attendant and automotive service mechanic.

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.

20140522_Walter

A Thirsty City – Sources of Water for Los Angeles
LADWP Should Focus on Providing Abundant, Affordable Water to its Customers

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 [union boss Brian] 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. [New] 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.