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DWP worker transfer: Tantrum, fraud or something else?

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When the Department of Water and Power tried to prevent City Hall from filling the utility’s payroll and burdening its retirement fund with about 1,400 uninvited workers, was it standing up against securities fraud? Or simply throwing a “global hissy-fit tantrum”? It depends on how you view the DWP’s role, and which former-mayoral-candidate-turned-current-mayoral-aide you believe.

Well before the campaign, Jan Perry was a staunch crusader against DWP management, practices and, especially, rate hikes; the “tantrum” language was hers. She came in fourth in the March 5 mayoral primary, and endorsed Eric Garcetti against Wendy Greuel a week and a half before the runoff. She is now Mayor Garcetti’s interim general manager of the Economic Development Department.

Kevin James was a former assistant U.S. attorney, a local radio talk show host and a critic of the City Hall status quo who came in third in the mayoral primary. During the campaign, he filed a complaint with the U.S. Securities and Exchange Commission claiming that the city was obscuring its true financial condition and, in so doing, committing fraud against investors by moving funds among various accounts. James claimed that the transfer of workers and pension obligations from the city’s payroll to the separate books of the DWP was one of those fraudulent moves.

James endorsed Garcetti soon after the primary, and when Garcetti took office, he appointed James to the Board of Public Works, a full-time post with an annual salary of $134,000. James was quickly elected the board’s president.

A lawsuit over the massive transfer of employees to the DWP is one supposed justification for early contract talks currently underway between city officials and the utility’s major labor union. Three union appointees on the Water and Power Employees’ Retirement Plan, or WPERP, allege that the transfer unfairly burdened their fund. If the pact is concluded in its current form, the suit would be settled.

Perry made the “tantrum” statement in 2010, in the midst of an especially tense time at City Hall, with elected officials scrambling to find unorthodox ways to deal with a budget shortfall without imposing huge layoffs and service cuts. At about the same time, the DWP was asking the council to approve a rate increase, and the council said no.

And then the council hit upon the idea of the employee transfer, and the DWP said no.

“Because we didn’t give them their rate increase, it’s like they’re having a global hissy-fit tantrum,” Perry told a forum at Loyola Marymount University. Perry promised that the council would override the DWP’s action and push the transfer through, and it did. The transfer policy, known as reciprocity, remains in place today.

Perry also said at the time that a host of ballot measures for the 2011 election that would change the governance of the DWP to put elected officials more firmly in control were now a “slam dunk.” They weren’t. By election day, the only DWP reform measure was one to add a ratepayer advocate.

Most council members, at the time at least, shared the “city family” view of the DWP: The utility is a city department and is there to further the mayor’s and the council’s political and policy goals, like keeping rates low, transferring revenue to City Hall, investing in clean and green energy, providing job training and employment opportunities to underserved communities, and helping the city get out of its budget jam without layoffs or labor strife.

There is another way of looking at it, though. The DWP, rather than being a city department, is a quasi-independent company whose shareholders are city residents and ratepayers. Like other public utilities, it is supposed to govern itself, subject to independent oversight -- but not subject to city meddling on internal matters like whom to hire, how much to pay them and how much to help City Hall with its financial troubles.

Because it is a separate company, its workers have a separate payroll, bond rating and pension fund. And with that fund go separate fiduciary obligations owed by retirement plan managers and board members to preserve the fund’s financial integrity. And obviously, if some 1,400 workers are transferred to DWP from City Hall, and if their pension obligations come with them -- not just the obligations for benefits they would earn from that time forward but the employer's duty to cover 100% of each transferred worker’s benefits throughout their retirement years -- there is a major unanticipated and unfunded burden on WPERP. And a major boon to LACERS, the city pension fund that will not have to send retirement checks to those hundreds of workers.

James alleged in his fraud complaint (see page 24) that this transfer was one of many maneuvers that papered over the city’s true financial condition.

Garcetti, while council president, took the lead in arranging the employee transfer under the city’s existing reciprocity policy. He also helped craft a 2011 ballot measure that created a ratepayer advocate -- and nipped in the bud several other proposed measures, including those backed by Perry, that would have tweaked DWP governance and would have clarified whether it’s more a city department like any other or a relatively independent city-owned utility.

To Perry, blocking the transfer among departments was a tantrum. To James, making the transfer in the first place was fraud.

The current council is pressing for a new contract for DWP workers. A report on the deal by the council’s top analyst calls for an end to reciprocity. There is nothing in the agreement that would clarify city government's relationship with the DWP.

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