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Breaking down Greuel's $160-million 'waste, fraud and abuse' savings

January 30, 2013 |  2:33 pm

Wendy Greuel
At virtually every campaign stop, Los Angeles mayoral candidate and City Controller Wendy Greuel points to eliminating $160 million in “waste, fraud and abuse” she's found at City Hall as a solution to the city's fiscal troubles and evidence she would be a tough fiscal manager as mayor.

But most of the dollar total in Greuel’s claim, now featured in television ads, relies on two audits that depend on an accounting maneuver and a large revenue projection that the controller's office itself said was unrealistic from the start.

Many of the dozens of audits cited by Greuel's campaign to support the $160-million claim reveal shortcomings in municipal policy and recommend “best-practice” reforms that many inside and outside of City Hall would agree are needed. While the reports identified potential new revenue and elimination of waste, the amounts cited by Greuel's campaign are not available to help the city treasury.

Greuel’s representatives said she has never tried to make such a claim. “We don’t talk about recovering $160 million,” said Greuel campaign spokeswoman Shannon Murphy. “What Wendy has consistently said is she has identified $160 million in wasteful spending, fraudulent practices and abuses.”

Greuel has sought to use the waste, fraud and abuse theme to project a command of city spending and a blueprint for beginning to lead the city away from financial ruin. Murphy defended the projections used by the controller’s office, saying they were compiled by professional auditors who had no political motivation for their work.

Greuel's supporters say she deserves credit for being specific about how she would take on the city bureaucracy. But her leading opponent, City Councilman Eric Garcetti, has attacked Greuel's claims. His aides say the actual amount of savings and new revenue has been $239,000.

Half of Greuel's $160 million -- as broken down on her campaign website -- comes from a single audit on unrealized revenue from a “street furniture” contract between the city and a company called CBS Decaux.

That 2012 audit said the city lost $23.1 million because the company has not paid enough for the right to place advertising on bus shelters, newsstands, public restrooms and kiosks. Another $57 million “could be lost” in the future if Los Angeles does not improve the contract — for a total shortfall of $80.1 million, Greuel’s office contended.

But CBS Decaux said it would come nowhere near the $150 million it had promised to pay the city over 20 years because bureaucrats, and especially city council members, disapproved of many of the locations where the company wanted to put shelters and advertising "pillars," the latter of which it said were key to making the program profitable.

Given those delays, the city’s Bureau of Street Services, the chief legislative analyst and the city attorney all agreed that the advertising company had properly paid the city at a reduced rate. Greuel’s audit acknowledged $8.2 million was “not recoverable,” given that understanding between city officials and the contractor.

The controller's office called for a renegotiation of the agreement and calculated future losses of $57 million by assuming a best-case scenario that the company would place all of the advertising originally planned and the city would be paid at the rates originally agreed to. Greuel’s office made the assumptions despite CBS' contention that conditions had changed since the original 2001 agreement.

Greuel, in her own cover letter for the audit, concluded: “The city did not realize the amount of proceeds it was led to believe it would be receiving when the contract was executed. It is clear, however, that this contract was unrealistic in terms of expectations from the very beginning.”

Murphy, the Greuel campaign spokeswoman, said professional auditors working for the controller "felt compelled to highlight the $57-million figure.” 

“This is absolutely a warning call that Controller Greuel put out. She is saying, ‘This is going to be a huge problem for the city if nothing is done differently.’ And, in fact, nothing has been done differently.”

As recently as a a few weeks ago, the city had made no progress on renegotiating with CBS Decaux. Murphy said it would have been “irresponsible” not to include the maximum possible extent of the losses, $57 million, in the audit report.

The contoller’s audit notes that payment to the city from CBS Decaux has been hampered in many instances because of City Council members holding up approval for the street advertising.

The second-biggest example of waste, fraud and abuse on Greuel’s list is $24.7 million from the Real Property Trust Fund. However, her office's audit on that topic did not identify missing or uncollected funds, but rather money that Greuel concluded should be transferred to other city accounts.  

At issue was the 50% of funds from sales of surplus public property and from oil pipeline franchises that has traditionally gone into discretionary accounts of City Council members. The money has been used to pay for art teachers, pocket parks, graffiti removal and, occasionally, for council members to pay their staff members.

When she served on the council representing the San Fernando Valley, Greuel spent $55,000 from her discretionary account to help pay for green space in her district, city records show.

Greuel suggested in her 2010 audit of those accounts that the money was needed in L.A.’s cash-strapped general fund. She called for the council to move quickly “to prevent more dramatic cuts in services at a time when Angelenos most need them.” Spokeswoman Murphy on Wednesday called the council accounts “slush funds” and said Greuel wanted the money moved because some of it was being “squandered” by council members to help pay the salaries of their staffs.

The council voted in 2010, after the Greuel audit, to give up $12 million that normally would have paid for special projects in members' districts and instead use it to replenish the city's emergency reserve.

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-- James Rainey

Photo: Wendy Greuel  Credit: Luis Sinco / Los Angeles Times

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