Even the most casual observer knows the City is cooking the books.

We are all familiar with the angst associated with the annual budget.  But this year is a cake walk as General Fund revenues are projected to increase by $325 million, accompanied by unanticipated pension savings of over $50 million.

But the Mayor’s budget that was approved by the Budget and Finance Committee on Wednesday is hardly balanced as the City once again has failed to provide adequate funding for its two severely underfunded pension plans and our failing infrastructure.  It even assumes that the civilian work force will forego a 5.5% raise in January and contribute 10% to the cost of its very generous health care benefit.

But little attention has been paid to the City’s governmental balance sheet, its $7 billion of debt, and its stated net worth of almost $5 billion.

However, when the balance sheet and net worth are adjusted for undisclosed liabilities of almost $30 billion associated with the City’s two severely underfunded pension plans and its massive deferred maintenance budget, the City’s net worth for its governmental activities shrinks to a NEGATIVE $25 billion.

The City also has significant investment in its “business type activities” that have a stated net worth of almost $17 billion after accounting for almost $18 billion of debt. These revenue generating operations consist of the three proprietary departments (Department of Water and Power, the Port of Los Angeles, and Los Angeles World Airports), the Sewer Department, and the Convention Center, the debt laden albatross.

However, the value of the business type activities needs to be dinged by about $4 billion to account for the DWP’s unfunded pension liability (based on realistic investment rate assumptions), thereby reducing the value of these revenue generating assets to $13 billion.

Overall, while the stated net worth on the City’s books is in excess of $21 billion, it is actually a NEGATIVE $13 billion when adjusted for all the hidden liabilities that our Elected Elite and their financial wizards have conveniently hidden from public view as they try to hide the fact that they have squandered the legacy created over the last two centuries.

Unfortunately, the Mayor, the Budget and Finance Committee, the City Council, and the Controller have their heads in the sand, unwilling to address the City’s pressing financial issues and operating inefficiencies in a realistic manner, fearing the wrath of the campaign funding union leadership and praying that the City will not blow up on their watch.

The fear of insolvency is real.  The City has a negative net worth, has over $25 billion of debt not counting the undisclosed liabilities, a budget that is out of control, and timid leadership that is clueless.

Fortunately, we have Mickey Kantor’s recently formed LA 2020 Commission to investigate the City’s financial situation and to make recommendations on how to stabilize and hopefully improve the City’s perilous financial condition.

The grown-ups on the hopefully independent LA 2020 Commission are also charged with the task of how to create jobs, attract investment and industry, and grow the economy.  But that is an academic exercise if the City does not get its act together, balance its budget, fund its pensions, rationalize its work force, and fix its streets and the rest of its infrastructure.

After all, who wants an insolvent partner?

So Mickey, the budget ball is in your court.

(Jack Humphreville writes LA Watchdog for CityWatch. He is the President of the DWP Advocacy Committee,  the Ratepayer Advocate for the Greater Wilshire Neighborhood Council, and a Neighborhood Council Budget Advocate. Humphreville is the publisher of the Recycler Classifieds – www.recycler.com. He can be reached at:lajack@gmail.com. Hear Jack every Tuesday morning at 6:20 on McIntyre in the Morning, KABC Radio 790. Originally posted on CityWatch.)

“I drove my Chevy to the levee but the levee was dry,” go the famous lyrics to singer Don McClean’s 1971 hit song, “American Pie.”

The California Dream of home ownership and speculative riches in land development died in 2008 in Natomas, the last undeveloped area of Sacramento.  It died not due to the concurrent bursting of the Mortgage Bubble. It died because the Federal government banned new constructionin 2008 until the region’s flood control levees could be further improved.

The levee was dry in Natomas not due to drought, or the economic depression, but to a shortage of pork barrel funding. The levees were dry because the tax levies were dry.

On May 15, 2013, U.S. Sen. Barbara Boxer, D-Calif., head of the Environment and Public Works Committee, cut a bipartisan deal to authorize $1.1 billion in Federal funding to fix the Natomas levees as part of a $12.5 billion package of public works projects around the U.S.  Boxer was able to get bipartisan sponsorship for her bill, S. 601, the Water Resources Development Act of 2013, from Senator David Vitter, R-Louisiana.

How funding died for Water Resources Development Act

The Water Resources Development Act was initially authorized in 1974 as a bi-annual appropriation of funding. But WRDA funding died between 1976 to 1986 when the U.S. House of Representatives, the Senate, and the White House could not agree about local cost sharing and environmental mitigation policies.

In 1986, 300 new funding projects were approved.  But for the first time, local sponsors had to pay a portion of the costs. This flood of projects created such a backlog that the U.S. Army Corps of Engineers still cannot handle them all.  The 2013 WRDA contains provision for a BRAC (military Base Realignment And Closure)-like commission to reduce the backlog of uncompleted projects. However, this new bill is likely to not reduce the backlog but increase it.

The WRDA funding “music died” again from 2008 to 2013, when the U.S. Senate refused to pass a federal budget and the Water Resources Development Act languished. 

Fishing for funding in a pork barrel

The Water Resources Development Act is what is commonly known as a political pork barrel of funding for huge water resource development, navigational, flood protection and environmental projects. Pork barrel projects typically contain funding for political “earmarks” and subsidies for projects that would otherwise be uneconomic on a “user-pays” basis.  By spreading costs over a large base of federal taxpayers, uneconomic projects can be made to look economic.

The 2013 WRDA cut out obvious earmarks of $2 million to repair the roof of the Smithsonian museum damaged from Hurricane Sandy and $7.3 billion to repair the New York transportation system damaged by Sandy. In both state and federal pork barrel legislation, the titles to large public works spending bills and bond issues often contain the word “water” as a way to sell it to voters.

The Boxer-Vitter bill comes along just as California is releasing its plans and environmental studies to “conserve” the Sacramento Delta. The Bay-Delta Conservation Plan is meant to re-engineer the huge Delta.  The hodge-podge of levees, dams, canals, sloughs, sunken island farms and tributary rivers have historically evolved has made the Delta politically unworkable. The Delta is still a vibrant eco-system for predator striped bass and ugly bottom feeder catfish. But it is not considered a politically correct ecosystem for pretty and tiny fish that can be sold to the public as “endangered” —  salmon, smelt, etc.

Illegitimacy of Northern Cal water opposition

Boxer’s bill could not come along at a worse time for Northern California water and environmental interests. This is because the bill takes the mask off of Northern California’s claim that the State’s new Delta Plan is a merely “water grab” by Southern California money interests that will harm fish.  Northerners claim that Southern California cities should eliminate all swimming pools and lawns before they get any more “Northern California water.” But this claim loses its political legitimacy if mostly what are behind the Natomas levee project are real estate, tourist and commercial fishing interests.

California has already spent $618 million on improvements to the Natomas levees from Proposition 1E and Proposition 84, both approved by voters in 2006, to be eligible for matching funds from the U.S. government.

To qualify Natomas for federal flood control funding, the U.S. Army Corps of Engineers and the Federal Emergency Management Agency downgraded the ratings of the Natomas levees. And of course there would be no flood hazard if the undeveloped portions of Natomas were left as is.

The state has completed 18 miles of levees and the U.S. Army Corps of Engineers has to complete 24-miles of levees.  U.S. Senator Dianne Feinstein, D-Calif., had also been seeking nearly $1 billion in funding for Natomas flood control improvements. Feinstein also advocated prohibiting vegetation on or near levees. But that would cost $7 billion to clear vegetation from 2,100 miles of levees, not including ongoing clearing costs.

Drove my Chevy to the tax levy

Rep. Doris Matsui, D-Calif., has been unable for some time to lift a levee repair bill out of the House because of Republican opposition.

So S.601, the Water Infrastructure Finance and Innovation Act of 2013, by Boxer, had to be initiated in the Democratic-controlled Senate through Boxer’s powerful committee. But the Senate Democrats had to buy off Republican opposition with promises of pork barrel funding.

Now that federal government revenues are increasing and the deficit is declining, there is political momentum to reopen the spending floodgates and breach the levees erected against pork barrel funding.

Boxer’s bill now proceeds to the House, where it faces stiff resistance from tax-fighting organizations, pro-business associations, and environmental organizations that oppose its fast-tracking provisions. California Real estate interests, environmental organizations, the building and construction industry, and unions in Central California are anticipated to favor the bill to complete the Natomas flood control improvements.

(Wayne Lusvardi is an investigative reporter for CalWatchdog.)

If the definition of insanity is “doing the same thing over and over again but expecting different results,” Democratic legislators upset with Gov. Jerry Brown’s relatively parsimonious revised state budget seem bound to test that rule.

No sooner had Brown released his May budget revise Tuesday morning than Democrats were complaining that the governor’s plan just didn’t have enough spending.

They didn’t use those exact words, of course, since these are politicians. They each praised the governor for balancing the budget and agreed this is no time for unnecessary spending.

It just happens, however, that each legislator has pet projects that are not only necessary but also key to the future of California and its people.

For state Senate President Pro Tem Darrell Steinberg, it’s mental health programs and dental care for the poor. For Assembly Speaker John Perez, it’s college scholarships for middle-income students and increased court funding. State Sen. Mark Leno wants to “invest in other areas that are critical to our economic growth and social welfare” while state Sen. Leland Yee says, “It is time to undo the damage done to California’s most vulnerable citizens.”

You get the picture.

But here are two words for those Democrats upset with Brown’s budget: Gray Davis.

Heck, let’s make it four words: Arnold Schwarzenegger.

When Davis took office back in 1999, California was in the middle of the dot-com boom, which sent state revenue soaring. The governor and the Democrat-led Legislature, convinced the party would never end, started expensive new programs, boosted pay and pensions and signed off on budget hikes of 15 percent or so.

When the boom went bust, state finances were quickly awash in deficits and red ink and Davis got recalled.

Now Perez and other Democrats are complaining that Brown’s budget and its revenue forecasts are just too pessimistic and suggesting they will be using other, more spending-friendly numbers expected from the Legislative Analyst’s Office when it comes time to negotiate with the governor.

While the Davis years might as well be in the far, fuzzy past when dinosaurs walked the earth in these days of term limits, there are still plenty of legislators who were there when Schwarzenegger was proclaiming himself an eternal optimist.

It showed in his budgets, which too-often depended on a federal money fairy to arrive in Sacramento and sprinkle cash on a deserving California.

You may remember how that worked out.

Pessimism is a good thing when it’s time to draw up a budget. It’s unfailing optimism that gets legislators – and the state – in trouble.

It wouldn’t be a surprise if Brown and his finance team were cherry-picking the budget numbers and trying to cast the gloomiest light possible on California’s future finances. After all, the governor has been in and around state politics for his entire life and knows the unrelenting pressure to spend every available dollar on the unquestioned needs of the state.

“There’s a reason why this budget was always in deficit: Because there’s a lot of needs out there and there’s very articulate advocates,” Brown said at a news conference Tuesday. “And I’m trying to find the right balance between spending and holding the line.”

With the economy healing but not healthy, there’s every chance that the unexpected boost in revenues was a one-off that won’t be repeated next year. And Davis showed the disaster that comes when long-term obligations have to be paid with short-term – and fast disappearing — money.

That’s why one of Brown’s biggest new expenditure in the revised budget is $1 billion to help school districts prepare for implementing the new “common core” standards by buying new books, training teachers and providing the technology needed to improve and refocus education in the state.

It’s a one-time grant made with possibly one-time money.

But programs, even restored ones, have a life span that all too often outlives – and outgrows — the money to pay for them. And Brown has argued that it doesn’t make sense to bring back something like dental care for Medi-Cal clients if you just have to pull it away if the economy turns sour in a year or two.

“This is not the time to break out the champagne,” the governor said. “Anybody who thinks there’s spare change around hasn’t read the budget.”

Democrats are likely to test Brown’s resolve on issue after issue between now and the June 15 budget deadline and it will be interesting to see just how much of his plan the governor can hang onto.

One plus about a pessimistic outlook, though, is that any surprises are happy ones. And Californians are way overdue for a run of good news.

(John Wildermuth is a longtime writer on California politics. Originally posted on Fox and Hounds.)