The Gavel

By Katy Miessner with help from John Kocourek

8/22/08

Thursday August 21.........

The MOMENTOUS themes of the day were:

• The Rose report is garbage (we knew this);

• The Unions breached their confidentiality agreement by prematurely releasing the Rose Report (AKA: negotiating in bad faith)

• The IAFF is willing to sell their brethren unions down the river

• And based on the poor testimony of Roger Mialocq, (author of the Rose Report), and poor performance by Dean Gloster/Kelly Woodruff (Union lawyers), the Unions are NOT getting their money’s worth. I suggest the Unions ask for a refund, or at least a discount…

   

To start off with, the Judge dismissed the Union’s motion from Tuesday that the City’s case be thrown out. The judge declined to render a judgment until all the evidence is heard. A statement Gloster made that struck me as odd: he said to the judge “Even if we are right, you can ignore us”. Is this Gloster’s attempt to lay groundwork—if they lose in court—to file an appeal and smear Judge McManus’ reputation?

The City did not want Mialocq to testify because, in response to certain questions asked of him during deposition, he invoked “attorney-client privilege”. Was this because of the several versions of his “Rose Report”? Mialocq’s first report, dated April 4, had big errors (Ms. Woodruff wanted to call them “typos” but “typos” don’t total $2.3 million dollars!). Mialocq found and apparently corrected these errors, but when he submitted his declaration to the court, he used the flawed April 4 report that—based on his testimony—by then he knew contained errors.

Well, these errors were admitted to in court instead, in front of the judge! And in front of very interested parties that always held the Rose Report in suspicion (for good reason!). Mialocq’s errors were NOT the result of complex calculations. They were errors that even the average bookkeeper doesn’t make. One error—in Mialocq’s Microsoft Excel spreadsheet—was a result of a “sum” formula not catching the last number. For those not familiar with Excel, this error is akin to you adding up ten numbers, but you miss adding the tenth number: third grade math error. The other error was equally as simplistic and I can’t imagine how it was even made. Instead of a positive $1 million dollars, Mialocq entered a negative $1 million dollars, which resulted in a $2 million dollar swing. I am investigating exactly where these errors are in his report and I’ll report back.

Regardless, Mialocq admitted on the stand that these errors were made and that “he corrected them shortly afterwards”. Even still, the report with errors was submitted to the court along with his June 27 declaration, more than 80 days after the flawed report was created. And it conveniently made the Union’s “offer” to the City look better than it was.

In the morning, Woodruff questioned Mialocq at length about his experience (Bachelors of Arts in Economics, MBA) to make him an expert witness. The judge agreed to allow Mialocq’s testimony. During her questioning of Mialocq, Woodruff suggested Norm Hile (legal counsel for the City) should not make objections—taking too much time—which I found laughable. A lawyer does not tell another lawyer to not object!

And speaking of wasting time, Woodruff repeatedly asked Mialocq questions that were clearly already answered in his declaration. Time was being wasted asking questions already answered, and as John and Maureen said: Cha-ching! Cha-Ching! Woodruff was making money for her firm with every repeated question. Wait until the Unions see the lawyers’ bills, at 19¢ a second. Woodruff clearly accomplished annoying Judge McManus—he repeatedly agreed to Hile’s objections of bringing up prior testimony.

Woodruff discussed with Mialocq various ways in which Mialocq believed he thought Vallejo could avoid bankruptcy. Most of which were refuted in Hile’s afternoon cross-examination of Mialocq, and those not refuted I’m sure will be addressed Friday. Here’s a blow-by-blow:

• Hile uncovered flaws in Mialocq’s assertion that the City could generate revenue billing the State for reimbursement of various services provide under “SB 90” (reimbursement of costs for programs mandated by the State). Mialocq admitted that since the City has yet to be reimbursed for many expenses billed to the State as far back as 2003-2004, any revenue budgeted next year must be very conservative. Mialocq also agreed—after Woodruff’s overruled objections—that the $2.2 million the City has already collected from SB 90 has been over a span of 17 years. Not a lot of revenue.

• Hile also uncovered—again to the overruled objections of Woodruff—errors regarding revenue related to unclaimed property that could supplement the General Fund: most of Vallejo’s unclaimed property is not related to the general fund: some belongs to the School District (Vallejo USD) and some to Vallejo San and Flood. Mialocq awkwardly tried to assert that he didn’t know USD stood for “Unified School District” and Mialocq kept blaming his lack of research on “I only had two weeks”.

• Many of Mialocq’s revenue items are “one-time” funds, that is, you get them and spend them and then they’re gone. Mialocq agreed that these types of revenues should not be used to fund on-going operations (for instance, IAFF salaries) but after questioning from Hile, Mialocq admitted that these were included to fund on-going expenses in his analyses.

• Mialoqc said in the morning, as part of his credentials “give me a budget and I can balance it”. Hile pointed out that—even with Mialocq’s spreadsheet errors corrected, the budget he put together for the unions had a deficit of $5.5 million. That is, revenues are less then expenses. That is, the budget wasn’t balanced. Even though he was hired to prove the City was not insolvent, the budget he was given, he could not balance.

• Mialocq agreed with Vallejo’s budgeted assumption that the City could lose $1 million from State takeaways, but when Hile questioned Mialocq about the fact that the League of California Cities’ website www.californiacityfinance.com is now estimating Vallejo could lose $2.4 in revenue from the State, Mialocq admitted he had not even heard of the web site (some expert in California City Financing!) and then tried to excuse this by stating he had been preparing budgets for 35 years and budgets change all the time and if budgets didn’t change, he could be sitting on a beach in Maui right now.

• When Hile questioned Mialocq about $3.1 million in new revenues— revenues Mialocq included in the Rose Report, Mialocq admitted that to project income, he simply used City draft reports that were never approved by the council. When Hile asked Mialocq if these potential new revenue streams had been researched, Mialocq again admitted he did not; complaining he had only two weeks to assemble his Rose Report. He also blamed the lack of analyses on his coworker—Cheryl Solov—she accepted this data.

Hile then went on to pull apart the revenue sources: Mialocq knew that 911 fees were “in limbo” because other cities had already filed suit against assessment of these fees, claiming they are really taxes and therefore, not legal for Council to assess (the court subsequently did rule them as a tax). Mialocq, knowing the fees were in limbo, still added these as revenue in his report.

Hile also brought up the EMS fees—charging people who are picked up by Emergency Services Staff—and Mialocq admitted that the cost of implementing the administration—billing and collection, had not been calculated.

Hile brought up the Landscape Maintenance District (LMD) fees—Mialocq admitted that he did not know the Council couldn’t simply assess these; he didn’t know property owners must vote to approve these. For something as common as LMD fees, assessed on new developments all over California post Proposition 13, shouldn’t Mialocq “the expert” know these require property owner approval? And don’t forget—not mentioned in court—Vallejo’s recent LMD vote in 8 LMDs, only two passed. Mialocq again blamed his lack of knowledge and research on the fact that he only had two weeks to prepare the report—maybe he should have mentioned this in the report…

• Mialocq admitted that he breached the confidentiality agreement he had made with the City during negotiations. And Hile’s questioning and Mialocq’s testimony proved the Unions breached it as well. Mialocq attempted to blame the Unions’ lawyers for releasing his report before the end of mediation. But Mialocq admitted being at a press conference and taking questions from the press on his confidential Rose Report when he should not have, since he agreed to confidentiality.

• There were many other points raised by Hile, and Mialocq often times blamed the short turn-around time on errors, oversights and lack of detailed analysis, on his fellow staff person, Cheryl Solov. Hile reminded Mialocq that when the Harvey Rose Firm—not a Certified Public Accounting Firm (they were even forced to take “Accounting Firm” out of their old title, none of the partners are CPAs and neither are the four staff assigned to the Vallejo project. One even has a background as a Registered Nurse)—was first asked to take the project on, Mialocq said he didn’t have the time. But Mialocq admitted he had a bias that Vallejo not be able to go bankrupt because it would be detrimental to his clients. Is Mialocq’s bias the basis for his flawed and rushed report that the Unions claim avoids bankruptcy? even though Mialocq’s report also has a deficit, so doesn’t avoid bankruptcy at all?

The last and crucial testimony that seemed to fly over the heads of Steve Gordon, Mat Mustard and the IBEW Union head (don’t know his name) was Woodruff’s questioning and Mialocq’s assertion of what should be done in response to Vallejo’s $10 million dollar deficit. Mialocq asserted that the City Council is obligated to lay off as many staff as it takes to bridge the deficit. He admitted that the City can’t lay off IAFF employees (minimum staffing) so apparently the other unions must suffer, even if it means laying off CAMP employees, IBEW employees and Police. Mialocq and the lawyers—representing ALL unions, not just IAFF, seem perfectly willing to balance the budget on the backs of all labor except IAFF. It’s a wonder that these other unions agree to go along with IAFF, since IAFF will screw them in the end as well. And it seems, so what!!! if the other unions are picking up a portion of union attorney Dean Gloster’s fee at 19¢ a second?