Civil Grand Jury County of LOS Angeles

Recommendations 7

• R1

  Page 118
  The LADWP’s governance needs clarification and simplification. A stronger, independent Commission system may be warranted. Establishing a single governing board, with clear authority and considerable independence from day-to-day political influences, is an appropriate place to start. Strengthening the governance structure is essential to ensuring reliable electrical supplies, low rates, and adequate payments to the City, as well as to maintaining Los Angeles’ leadership among the nation’s municipal utilities. The LADWP should return to a commission system that restores integrity by balancing independence and accountability. A plan to decrease political involvement by the Mayor and Council would allow the LADWP to operate for the benefit of the ratepayers. Consider separating the policy making function of the Mayor and Council from the operational responsibilities of the Board and General Manager. The Council and Mayor could set policies and communicate them in writing to the Board which, in turn, would transmit them to the General Manager. It would require the Mayor or Council not give instructions to individuals who report directly to the Board or General Manager, directly or indirectly. Board policies should set out the utility’s purpose and ends to be achieved. They should also designate what actions of the General Manager are considered unacceptable to the Board, both general and in specific. The General Manager may then make all decisions and carry out any activities not expressly prohibited by the Board, without seeking further approval.
• R2

  Page 118
  Establish guidelines for Commissioner appointments, and reduce the politics of appointment, real or perceived. Examples of guidelines to be written and agreed upon might be to appoint Commissions based on specific levels of expertise (financial, utility operations, corporate governance, education level, or geographic representation). Also ensure that the candidates have the time, inclination and ability to stay the entire five years. It is important that “politics” (or political contributions) be taken out of the choice for Commissioners. There are a variety of ways to deal with this issue. One is to have a Citizens Council choose the Commissioners or have Commissioners themselves choose a replacement for a member whose staggered term is up. Another example might be to have the Mayor choose two (2) members, the Council chooses two (2) members and the Neighborhood Councils choose one (1) member. Whatever the approach, the perception and the reality must be that money does not buy a Commission position. 92 2010 – 2011 LOS ANGELES COUNTY CIVIL GRAND JURY
• R3

  Page 119
  Expect LADWP Commissioners to serve full five-year terms. LADWP needs a historical and continuous level of knowledgeable and experienced Commissioners who can make decisions primarily based on their independent judgment. The Commission may remain responsible to the Mayor and Council, but it should be insulated from undue political influences on normal LADWP business matters. To maintain independence and continuity, LADWP Commissioners should be expected to serve out their terms unless there is cause for their removal. They should not resign when succeeding Mayors are elected. An amendment returning to the previous Charter language allowing for removal by the Mayor with Council approval or for cause by a two-thirds vote of the Council, may be warranted.
• R4

  Page 119
  Reduce the bureaucratic impact to the Department due to Mayor or Council involvement. While citywide coordination of the Department is an important function of the Mayor’s office, the current wording of Executive Order 4 is all encompassing. Regular, informal consultation with the Mayor’s office rather than formal ED 4 submittals would potentially speed up and improve the decision making processes of the Commission. Likewise, the threat of Prop 245 fosters bureaucratic delay, takes up scarce management time, encourages more paperwork to justify decisions and adds uncertainty to normal business dealings. Pension Issue and Impact of Employee Transfers Finding and Recommendation 5. Although there was originally some concern that personnel were taking higher paying jobs at LADWP for only a short time (pension spiking) in order to increase lifetime pensions, such does not appear to be the case. However, the number of transfers from the City to the Department may have a negative impact on the pension funding for the Department. The City has taken advantage of the Department’s ability to accept additional personnel and provide pension coverage to them (eventually through increased rates) by transferring up to 1600 employees in the last five (5) years. Those transfers were part of a larger effort to keep City workers from losing their jobs in departments hit hard by the budget crisis. While it is a noble goal to protect employees from layoffs, it is unfair to place the financial burden (both salary and pension costs) on the backs of the LADWP ratepayer. The Segal Company performed an analysis of the Reciprocal Arrangement between the Water and Power Employee’s Retirement Plan (WPERP) and the Los Angeles City Employee’s Retirement System (LACERS) due to the financial impact the Reciprocity Program has had on the WPERP during the period from April 1, 2004 through March 31, 2010. Currently, when a former City employee transfers to the LADWP the WPERP recognizes prior service with LACERS, provided the member agrees to have their employee contributions transferred into WPERP. Under the Plan’s Reciprocity Program, when a member transfers, full credit for service is established in WPERP, but only their employee contributions are transferred from LACERS to WPERP; employer contributions made to LACERS associated with their service are not transferred to WPERP. Since only employee contributions are transferred, WPERP incurs an additional unfunded liability when an employee transfers to LADWP from the City. (The Department makes a 110% contribution into WPERP after the employee contributions have been transferred from LACERS. This has the effect of providing immediate employer funding for part of the actuarial loss caused by the transfer but that contribution may eventually impact rates.) The Segal Company found a large unfunded actuarial accrued liability (UAAL) as a result of these transfers. The total of the increases in UAAL, determined as of each valuation date due to the 1,331 members whose service and employee contributions has already been transferred to the WPERP as of March 31, 2010, is approximately $128.4 million. These amounts, accumulated with 8% interest to July 1, 2010, total $152.4 million. The average age for these members, years of service and average employee contributions transferred are 41.3, 6.9 years and $28,400 respectively. In addition, The Segal Company received partial information for 292 members that were identified by the Retirement Office as transfers but whose service and employee contributions were not yet transferred to WPERP as of the end of the observation period. The UAAL as of each valuation date due to these members is about $30.5 million. The average age for these members, estimated average amount of service and average employee contributions to be transferred are 40.7, 7.8 years and $37,900 respectively. The grand total of the increases in UAAL for LADWP accumulated to July 1, 2010, including both groups, is about $183.1 million. Worried about the cost of those transfers, LADWP officials moved to suspend full retirement benefits for any new worker who comes to the utility from another City agency. The City Council vetoed that measure.
• R5

  Page 120
  The City and LADWP should come to an agreement to rescind the reciprocity agreement until such time as the number of employees transferred back and forth between the City and LADWP reaches equilibrium. Personnel should only be transferred as required by LADWP and then only with full financial contribution to the pension fund. 94 2010 – 2011 LOS ANGELES COUNTY CIVIL GRAND JURY Succession Planning Finding and Recommendation 6. Succession planning does not take place within LADWP to any meaningful extent. Given the high turnover of senior management, it is essential that the next several layers of management have the necessary tools, including trained professionals as replacements, to accomplish their functions. Additionally, there are many positions that will be in need of replacement in the next several years; and succession planning will assist the Department in meeting those needs. This is a City-wide concern. The Los Angeles City Controller conducted a performance audit regarding the City of Los Angeles’ hiring practices and determined that “The City of Los Angeles does not strategically plan for its workforce needs.” In a department where so many people who serve the citizens of the City are eligible to retire in the next several years, this is also an intolerable situation for LADWP. It is difficult in a civil service environment to accomplish succession planning for specific positions. Because employee selection in the City of Los Angeles is based on a well established civil service system in place for well over 100 years, LADWP relies on the Civil Service Commission and the City Personnel Department to assist in meeting their hiring needs. Although filling entry-level positions is important, succession planning to fill supervisory and managerial positions is even more important and must be a priority for the Department. Once identified, a substantial amount of training and leadership development will be required. The key is the successful transfer of technical and operational knowledge to adapt to the current environment. According to the Department, as of January 1, 2010, approximately 40% of LADWP’s workforce was fifty (50) years of age or older. Within the next five (5) years, approximately 20% of the workforce will be eligible for retirement. LADWP must determine how to continue to deliver its services in the future with decreased staff due to upcoming retirements. To ensure that LADWP has the appropriate resources and positions needed to meet the business goals and objectives, there must be a sufficient number of candidates available to be considered for each job classification, especially those that are critical or have been difficult to fill. This issue alone will require collaborating internally as well as with the Personnel Department’s various divisions to consider ways to address this, such as allocating positions, consolidating job classifications, submitting examination requests and pursuing regular and executive recruitment activities. Additionally, a specific manager may not identify a replacement prior to departure. This does not provide an opportunity for training in the specifics of any job. Personnel are thrown into a job situation that may be new to them and, given all the other personnel scheduled to depart, the institutional knowledge necessary for effective performance may not be available. A change in the civil service rules may be necessary on at least a temporary basis to allow personnel to train their replacements. The Department has responded to some of these challenges by creating a Workforce Planning Group within the Human Resources Section of the LADWP. This is a good beginning to ensure that services continue to be provided to the citizens of Los Angeles. The Department’s Human Resources Manager appears to have a strong grasp of what is required to accomplish this goal and has developed a well thought out initial plan. But the process will need more resources than the current four (4) individuals assigned to assist him. Additionally, some changes in the current methods of hiring and promoting personnel may be required to ensure continuity of knowledge and ability.
• R6

  Page 122
  Fully staff and fund the Workforce Planning Group to encourage a full review of options for future LADWP employment. Also work with City Personnel Department and the Civil Service Office to allow some changes in hiring and promotional practices for high level essential jobs. An example would be to allow a process whereby individuals could be chosen for certain jobs prior to the departure of a senior or highly essential position. Current methodology for position listing, testing and choice could be followed, but the timing of the replacement may differ. That way, the individual could have access to the current incumbent’s knowledge, techniques and contacts to ensure a seamless transition. It may also provide reduced costs since it would not be necessary to potentially hire the incumbent to return as a consultant to assist in the transition. It is clear, given the immediate nature of this issue, that “out of the box” thinking will be necessary within LADWP as well as support provided by City and civil service personnel. 96 2010 – 2011 LOS ANGELES COUNTY CIVIL GRAND JURY II. IBEW POLITICAL INVOLVEMENT SUMMARY The IBEW has substantial involvement in both the operations and governance of the Department and in the political issues facing the City. They achieve this by monetary political contributions and by involving their members into the political and governance processes. In addition, there is a personal level of involvement between the IBEW Business Manager and the Mayor and other politicians. Although this involvement has been criticized as “heavy handed” by many in the City and the Department, it should be remembered that the Union representatives and management are only doing their job by watching out for their members. Many of the people we interviewed felt that the Union’s involvement may be too heavy handed or disruptive. It is the responsibility of City politicians and Department management to stop it. BACKGROUND While there is little quantitative evidence that campaign contributions impact legislative voting, there can be little doubt that campaign contributions provide contributors with a benefit that average voters do not get access to decision makers. Access provides major contributors with powerful tools to engage in the policy process. Access to candidates and the policy process provide contributors with the opportunity to “educate” policy makers about how supporting or opposing certain types of legislation might impact their organization and community. Candidates for municipal offices obtain funds from several sources: direct contributions; independent expenditures by individuals or organizations; matching funds; and ballot measure committees. In 2009, thirty-two (32) candidates for Los Angeles municipal offices received $14 million in direct contributions, and $1.7 million in matching funds, with the bulk of these contributions, about $10 million, going to the sixteen (16) citywide candidates for Mayor, City Attorney and Controller. Organizations and individuals spent $1.77 million in independent expenditures on these races. Of this amount, organizations spent more than $1.7 million compared to just three (3) individuals spending only $48,000 in independent expenditures. Ten (10) candidates received $1.7 million in public matching funds, most of which went to citywide candidates. (Under Proposition H, enacted in 1990, City Council candidates are eligible for public matching funds once they have raised $25,000 in contributions of $250 or less. Mayoral candidates must raise $150,000 in contributions of $500 or less, and City Attorney and Controller candidates must raise $75,000 in contributions of $500 or less. Matching funds eligibility is also contingent upon a candidate’s agreement to limit spending and whether an opposition candidate has qualified for matching funds or has raised, spent or has $50,000 or more in cash.) The relationship between candidates, ballot measures and candidate controlled ballot measure committees also play a significant role in the political process, as illustrated in a 2009 ballot measure offered to voters. Measure B, Green Energy and Good Jobs Los Angeles, received over $200,000 in contributions from candidate committees and candidate controlled ballot measure committees. Some suggested that Measure B was a “power grab” by City Council members, while others suggested that a history of union support of political candidates encouraged politicians to support the measure that would have provided LADWP with a near monopoly on solar power in Los Angeles. Under existing law, candidates can control ballot measure committees and raise additional contributions and make expenditures through them. Until recently, California law did not require candidates to disclose and identify the ballot measure the committee was formed to support. While new regulations on candidate controlled ballot measure committees require candidates to disclose what measure it was formed to support, these committees are still not subject to contribution limits. Candidates may utilize this loophole in campaign finance laws to raise and spend unlimited amounts of money on ballot measure campaigns. Between 2006 and 2009, three (3) Los Angeles municipal candidates raised over $9 million for candidate controlled ballot measure committees. Mayor Villaraigosa controlled three (3) ballot measure committees and nearly all of the $9 million, $145,000 of which he contributed to the Measure B campaign. METHODS AND PROCEDURES The CGJ interviewed management personnel that have an involvement in the management of the Department, personnel from IBEW and personnel from the Los Angeles Ethics Office. Additionally, the CGJ conducted internet searches and reviewed documents prepared by the Department, utility consultants, and other interested parties.
• R7

  Page 131
  Determine if the current state of union/management relations is equitable and not favorable to one side at the expense of the other. LADWP management personnel can only accomplish what they try to accomplish. If they continue to allow the Union to “win” the majority of issues, they only have themselves to blame for future problems. Elected officials should strongly consider an effort to reduce continuing union involvement in the management of the Department, other than through normal channels. Of course, this may impact the level of support and money provided to the elected officials but efficient and effective management of the Department should be the overwhelming goal. The ratepayer should be the primary concern.