Mish's Global Economic Trend Analysis

Bell California Emails Gone Viral; Citizens Protest $800K Salaries; City Manager Resigns; Can Anything be done about $600,000 Public Pensions?
Shadow Office Space "Leased but Empty" Haunts Commercial Real Estate
Price Deflation at Canadian Grocery Giant Loblaw; Anecdotes from the Illinois Home-Front

Bell California Emails Gone Viral; Citizens Protest $800K Salaries; City Manager Resigns; Can Anything be done about $600,000 Public Pensions?

Posted: 23 Jul 2010 12:16 PM PDT

I have received over a hundred Emails in the last few days regarding the city of Bell, California. I usually stay away from these kind of stories because most have seen them.

However, in the interest of stopping a further chain of emails, and more importantly discussing what if anything can be done, let's do a quick recap of events.

July 20, 2010 - Citizens Protest City Administrator, Council Member Salaries

Californians Protest City Manager's $800,000 Salary

Hundreds of residents of one of the poorest municipalities in Los Angeles County shouted in protest last night as tensions rose over a report that the city's manager earns an annual salary of almost $800,000.

An overflow crowd packed a City Council meeting in Bell, a mostly Hispanic city of 38,000 about 10 miles (16 kilometers) southeast of Los Angeles, to call for the resignation of Mayor Oscar Hernandez and other city officials. Residents left standing outside the chamber banged on the doors and shouted "fuera," or "get out" in Spanish.

It was the first council meeting since the Los Angeles Times reported July 15 that Chief Administrative Officer Robert Rizzo earns $787,637 -- with annual 12 percent raises -- and that Bell pays its police chief $457,000, more than Los Angeles Police Chief Charlie Beck makes in a city of 3.8 million people. Bell council members earn almost $100,000 for part-time work.

City Attorney Edward Lee said the council members couldn't discuss salaries in public without advance notice. The council then adjourned for a private session. About an hour later, the council members returned, and Hernandez read a statement saying the city would prepare a report on the salaries and seek public comment at the next council meeting, scheduled for Aug. 16.

Residents shouted in protest. Lee said he would have the room cleared if people continued to speak out of line. Police Chief Randy Adams said the fire department wanted to end the meeting because the crowd outside was blocking the door. ...

July 21, 2010 - Outrageous Pension Benefits For City Manager

If forced out, Bell city manager would be highest-paid retiree in state's pension system

He may have become reviled in working-class Bell for his nearly $800,000-a-year salary, but Chief Administrative Officer Robert Rizzo could have the last laugh.
Should he be forced from his job, he would immediately gain a new title: highest-paid retiree in the state's CalPERS retirement system.

Rizzo, 55, would be entitled to at least $600,000-a-year pension for the rest of his life, according to retirement calculations made by The Times that were reviewed by pensions experts.

That would make him the highest-paid retiree in the CalPERS system, outstripping the $509,664 paid each year to Bruce Malkenhorst, former city manager of Vernon.

Not far behind would be Randy Adams, the man Rizzo brought in to be the city's police chief last July. If Adams, 59, steps down, his pension would be worth an estimated $411,300, placing him just behind Malkenhorst on the list of top CalPERS retirement earners.

Taking the Bell job was a good career move for Adams. By moving to Bell, in just one year, the police chief more than doubled his retirement.

As debate over public-sector pensions takes center stage in this election year, with Gov. Arnold Schwarzenegger and other leaders pushing for reductions at the state and local levels, the projected pension checks waiting for Rizzo and Adams have taken even veteran pension watchers by surprise.

"It's outrageous and unsustainable," said pension reform advocate Marcia Fritz, noting that Rizzo would receive $26 million if he lived a normal lifespan. "High salary lasts just a few years – high pensions last for a lifetime."

July 23, 2010 - CA city seeks resignations of high-paid officials

CA city seeks resignations of high-paid officials

BELL, Calif. – The City Council in this small, blue-collar suburb of Los Angeles intends to ask three administrators whose salaries total more than $1.6 million to resign Thursday or face possible firing.

The officials include Chief Administrative Officer Robert Rizzo, who earns $787,637 a year — nearly twice the pay of President Barack Obama — for overseeing one of the poorest towns in Los Angeles County.

The others are Assistant City Manager Angela Spaccia, who makes $376,288 a year, and Police Chief Randy Adams, whose annual salary of $457,000 is 50 percent more than that of Los Angeles Police Chief Charlie Beck.

Councilman Luis Artiga said the panel planned to request the resignations during a closed-door, afternoon meeting that was called to consider dismissing the officials. A public hearing is scheduled for Monday.

Rizzo was hired at an annual salary of $72,000 a year in 1993, and the council rapidly increased that amount over the years. His most recent raise boosted his salary more than $84,000 a year.

July 23, 2010 - 3 Bell Leaders Quit in Pay Scandal

Bell leaders to quit in pay scandal

Bell's top administrators, whose hefty salaries have stirred public outrage and calls for investigations, agreed to resign Thursday night during a closed-door City Hall meeting.

City Manager Robert Rizzo, Police Chief Randy Adams and Assistant City Manager Angela Spaccia will not receive severance packages. Rizzo will step down at the end of August and Spaccia will leave at the end of September. Adams will also leave at the end of August, after completing an evaluation of the Police Department.

The decision was announced at midnight to a crowd of angry Bell residents who anxiously had been waiting since the City Council began its meeting at 4:30 p.m. None of the administrators attended the session.

The crowd erupted in applause after the announcement but immediately yelled out questions about what would happen to the council members. Four of the five are paid close to $100,000 annually. When their questions were not answered, they shouted, "Recall!"

July 23, 2010 - Bell City Fires Manager, LA District Attorney Launches Investigation

Bell City Manager Paid Twice President Obama's Salary Resigns

Three municipal officials whose outsize salaries sparked a firestorm of outrage in the working-class Los Angeles suburb of Bell, Calif., resigned after midnight Friday following an emergency meeting of the city council.

The 56-year-old will draw an immense pension, between $650,000 and $880,000, making him the highest-paid pensioner in California.

"Rizzo resigns and still makes more than $600,000," said Ali Saleh, founder of the Bell Association to Stop the Abuse, a grassroots community group. "That's why I call him a predator. He's taking advantage of the community whether he keeps his job or resigns."

Four of the five council members, who approved the employees' salaries, earn over $100,000 for part-time work, sparking a preliminary investigation by the Los Angeles County District Attorney.

City council members in comparable cities holding similar posts typically earn around $4,500.

"We're reviewing the facts to see if we need to launch a formal investigation," said Jane Robison, spokeswoman for the L.A. County district attorney.

"Part of what took place is legal," she said. "If the council voted to give [Rizzo] the pay, that's legal. How much the council members are making and how those elected officials got that pay might require investigating."

"When Rizzo came in, in 1993, he was one of the lowest-paid city managers in the state," said Hussein Saleh [a city resident], who owns a fashion company and last year lost an election for city council. "Now he's the highest. It's not hard to understand what happened. He raised utility taxes, raised property taxes to the highest in the area, and pushed through a $70 million bond issue to fix the parks, but we haven't seen any of it."

Can Anything Be Done?

This is all so outrageous it is hard to know exactly where to start. Yet, once again corrupt politicians and unwarranted public pension promises are right at the heart of the issue.

These people are supposed to be public servants but they have raped city taxpayers, and worse yet will continue to rape taxpayers for as long as they live unless and until a means is available to claw back pension benefits.

One way would be for the city to file bankruptcy, another way would be for the city or state to tax public pension benefits exceeding say $50,000 at an enormous, progressive rate topping at 100% for benefits in excess of $100,000.

In the meantime, it is imperative to address the insane defined benefit plans of public workers. Taxpayers in every city have as much right to be disgusted as the citizens in Bell. Chief Administrative Officer Robert Rizzo acted as a lightning rod, but the real problem that affects every city is excessive pension benefits for public workers in general, especially police and fire departments.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Shadow Office Space "Leased but Empty" Haunts Commercial Real Estate

Posted: 23 Jul 2010 09:44 AM PDT

Shadow housing supply, foreclosed but not on the market as well as sellers who want out but cannot get out is one of the factors weighing on residential real estate. Similar supply issues weigh heavily on commercial real estate.

Office vacancies are widely reported, but few gave factored in the shadow supply, downsized companies with more leased space than they need, holding on to it hoping thing get better, or stuck in long-term leases with more space than they want or need.

Minneapolis StarTribune article Shadow space haunts office market takes a good look at this very issue.

That section of empty cubicles, the conference rooms collecting cast-off office furniture ... for employees, they're dreary reminders of layoffs, consolidations and shelved expansion plans.

To real estate professionals, it's "shadow" office space -- space that's leased or owned but largely empty and not officially listed anywhere as vacant. And brokers are fretting about the buildup of unprecedented amounts of it around the Twin Cities. All that idle square footage will likely prolong the recovery of the area's hard-hit office sector, already struggling with high vacancy rates. Slow demand for new space will likely mean a dearth of new construction, and all the jobs and building material sales that go with it.

NorthMarq's semiannual Compass Report, due out today, shows that the direct office vacancy rate in the Twin Cities has hit 19.9 percent -- a 19-year high, by NorthMarq's numbers. Fold in the space tenants are trying to sublease, and the rate jumps to 22.8 percent -- the highest since NorthMarq began tracking sublease space in 1995.

McCarthy and other brokers estimate that 75 percent of companies don't use about 10 percent of their space. By that measure, there would be about 5 million square feet of shadow space across the seven-county metro area -- enough to push the real office vacancy rate from 19.9 percent to above 25 percent and perhaps closer to 30.

The amount and scope is unlike anything he's seen in nearly 20 years in the business, he said. "It's across all types of buildings," McCarthy said. "It's just sitting there." It's a national problem, he said.

National Problem

Subleasing is not easy because of the glut of vacant properties, because walling off sections is impractical or impossible because of lease issues or physical constraints, and because of lease termination dates.

So the supply just sits and rental prices drop because of lack of demand. Companies with too much space respond by giving landlords notice of intent moving to smaller quarters, or demanding lease reductions.

Commercial real estate is going to be in a funk for years. Residential housing will pick up first, and lets' face it, residential housing looks miserable as well, also burdened by real and shadow supply.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Price Deflation at Canadian Grocery Giant Loblaw; Anecdotes from the Illinois Home-Front

Posted: 22 Jul 2010 11:40 PM PDT

In response to Deflationary Wage Pressures Hit Canada; Attitudes and Wal-Mart, the 800-Pound Gorillas several Canadian readers sent me an update on the situation at Canadian grocery giant Loblaw.

CBC News reports Loblaw seeing price deflation

Brampton Ont.-based grocery giant Loblaw Companies said Thursday it's feeling the pinch from price deflation and doesn't see any signs that will ease anytime soon.

Loblaw president Allan Leighton told investors on an earnings conference call that deflation has deepened at a quickened pace in recent months, which has challenged the company's overall growth.

"In the second quarter for Loblaw Companies we deflated at a faster rate versus the first quarter, and we were deflating at a deeper rate as we exited the quarter than as we entered it," he said.

"The markets are pretty aggressive," Leighton said of the competition between supermarkets like Sobeys Inc., owned by Empire Company Ltd., and Metro Inc.

"Most of the customer base in Canada is much more value conscious than they were … two years ago."

Pressures on sales have only increased since Walmart Stores unveiled its supercentre

Anecdotes from the Illinois Home-Front

I am always inquisitive about how local businesses are doing, especially under-the-radar businesses.

For example, the architect who drew up the plans for my house is my next door neighbor. He has long ago laid off several employees and does not have enough work to keep himself busy. Those were the conditions a year ago. Those are the same conditions as of yesterday.

Bear in mind, my architect neighbor is on the upscale end, the last to do down, and probably the first to recover.

Wednesday evening I also spoke with a Hispanic man who cuts many lawns in the neighborhood. He is a US citizen who speaks perfect English and his son is graduating from college in August.

He has been losing job after job as upscale clients have decided to mow their own lawns. Those were the conditions a year ago and those conditions are recently deteriorating.

His son has no leads and expects no job offers for his degree in horticulture.

I highly doubt my local experiences are unique. Moreover, the area in which I live had nowhere near the bubble of Florida, Nevada, or California.

The few jobs there are, my landscaper friend is losing to other bidders, at higher prices. I asked if those were government contracts.

You know the answer.

At a time everyone else is cutting back, Illinois, like most states, is governed by prevailing wage laws that favor unions and absurdly priced labor. Not only are we doing unnecessary work, we are paying outrageous wages for it.

Meanwhile, deflation prevails whether most see it or not.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

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Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

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