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May 23, 2007

Agenda Item #1

To:                   NCRC Commissioners

From:               Raphael Sonenshein, Executive Director

Subject:            Staff Report on Funding of Neighborhood Councils for May 24, 2007

Commission Meeting

Finding #1: The Charter made no provisions for City funds to financially support the Neighborhood Councils.  After the Charter passed in 1999, there was discussion of allowing Neighborhood Councils to apply for grant funds from the City.  However, no such grant programs were ever developed.

Some debate took place about whether Neighborhood Councils could become non-profit organizations, an idea that was incorporated into the Plan.  So far, however, the City Attorney has determined that Neighborhood Councils may not directly accept donations without Council approval. Discussions are proceeding with the City Attorney and others about new legislation to allow Neighborhood Councils to accept gifts.  

Finding #2:  In 2002, Mayor James Hahn announced a program to provide direct funding to all Neighborhood Councils, in the amount of $50,000 each.

DONE was tasked with administering the funding.  Ultimately, the design of the program involved checks to be authorized by Neighborhood Councils and issued with the approval of DONE, and pre-paid debit cards to be used by Neighborhood Councils for smaller amounts with original receipts required.

Neighborhood Councils are expected to spend their money on administrative expenses, outreach, communications, or other purposes.  DONE provides a list of approved and unapproved expenditures.

Neighborhood Councils receive an allocation of $50,000 every fiscal year.  They can accumulate an unexpended balance of no more than $150,000.  After three years, any funds totaling more than $100,000 are “swept” back in the City’s general fund.

Finding #3: Valuable activities have been undertaken by a number of Neighborhood Councils using their funding allocations. The funding program seems to provide a sense of control and autonomy for advisory Neighborhood Councils.

• Bel-Air Beverly Crest purchased life-saving fire protection blankets for the LAPD.
• Central Hollywood provided weekly graffiti and large-item surveys, reporting, and clean-up
• Coastal San Pedro presented outreach pancake breakfasts for over 200 people at the Cabrillo Beach Bathhouse.
• Empowerment Congress North (CCANDC) is sponsoring a community discussion involving day laborers and members of the community, similar to the Days of Dialogue.
• Empowerment Congress Southwest has organized graffiti removal and cleaned approximately 10 tons of garbage from 20 alleys.
• Empowerment Congress West conducted a community-wide forum for election candidates and community organizations.
• Greater Toluca Lake sponsored an emergency preparedness program with the LAFD.
• Hollywood Hills West sponsored a Splash Bash that brought in more than a thousand new stakeholders.

 

(See attachment for list provided by DONE from which these examples are taken)

Finding #4:  The administration of the fiscal program by DONE (e.g., answering questions from Neighborhood Councils, tracking expenditures, ensuring that expenditures are within budget and within Controller and City guidelines, and preparing summary expenditure reports) has occupied significant staff time. 

Even with all the staff effort, the requirements of the program have been difficult to implement. Thus, the system has experienced the worst of both worlds: too big a bureaucratic role to suit the mission of DONE, without the staff resources to do a complete and thorough job.

In November 2006, City Controller Laura Chick released a performance and management audit of DONE.  The audit highlighted a number of problems with the fiscal management of the program, such as missing receipts and other documents, inconsistent application of funding rules by DONE, lack of controls over the debit cards, and the limited effectiveness of Neighborhood Council budgets that must be submitted to DONE before expenditures can be approved.

Finding #5:  The funding program requires each Neighborhood Council to have a treasurer, and the City and the Controller impose significant financial reporting requirements on each Neighborhood Council.

The necessity for DONE to monitor the financial transactions of individual Neighborhood Councils creates mutual frustration, including missed deadlines, absent or incomplete paperwork, and lots of correspondence back and forth.  It is difficult to expect all 89 Neighborhood Councils to recruit highly effective treasurers, especially since many treasurers are elected.  Calls for treasurer training are added to the array of other training programs recommended for Neighborhood Councils, and turnover of treasurers complicates the situation. There is no clear plan for what to do with incompetent or unresponsive treasurers.  Neighborhood Council bylaws contain detailed language about financial reporting.

Finding #6: Considerable funds are not expended by Neighborhood Councils.  Inevitably, these unspent balances are tempting targets for City budget officials.

The Controller found that by the end of fiscal year 2005-06, that while the City had appropriated $10.9 million to this program, more than 50% had not been spent.

NCRC staff analysis of spending data through June, 2007 (including estimates of spending in June) indicates wide variations among Neighborhood Councils in their spending patterns. 

Fourteen (14) Neighborhood Councils had less than 25% of their current allocation remaining, while for 9 Neighborhood Councils over 75% of their allocation remains unspent.  More experienced Neighborhood Councils seem to be more likely to spend their city funding.  The average Neighborhood Council that started receiving funds in 2003 has spent roughly 60% of its total appropriation, while Neighborhood Councils that started receiving funds in 2005 and 2006 have spent approximately 35% of their allocation. (These figures are based on mid-year spending and may change by the end of the fiscal year.)

New ways of thinking about the unexpended funds should be explored in a way that invests the funds within the Neighborhood Council system, and avoids the accumulation of large sums of unspent funds. 

Finding #7:  In light of previous recommendations by the NCRC, DONE’s role in managing the funding program seems inappropriate.

DONE staff are not trained in financial management, nor should they be.  They have managed, however, to provide considerable valuable information to Neighborhood Councils regarding funding.  

The requirement that Neighborhood Councils pass a planned budget before expending funds seems more appropriate for a City agency or department than for a participatory organization.

The NCRC previously directed staff to explore a fiscal agent or sponsor model.  The fiscal sponsor would pay Neighborhood Council authorized expenditures and potentially provide such additional services as recruiting clerical help. The Tides Foundation has received funding from the Kellogg Foundation to link together organizations that can provide these services.

Finding #8:  Replacing the funding program with a grant program could introduce new problems and possible inequities.

While a grant program would provide the potential for innovative programs selected on a competitive basis, it might also add another level of paperwork both for Neighborhood Councils and for DONE.  Experience with grants-seeking organizations indicates that the ability to write successful grant proposals varies widely.  The experience with Community Impact Statements suggests that a competitive grant program as a substitute for direct funding may heavily skew the availability of City funds.

Finding #9: Discussions about subdividing existing Neighborhood Councils have implications for the funding program.

Should Neighborhood Councils be allowed to subdivide?  And if they do, should new Neighborhood Councils receive the full $50,000 allocation?  While there is an ideal size in the literature of neighborhood democracy that is much smaller than the existing Los Angeles system, some criteria are needed to ensure that the funding program does not become a motivating factor for drawing new boundaries, and to prevent an explosion of the budget.

Some Possible General Approaches

 

1. The funding program should not create major bureaucratic obstacles for Neighborhood Councils or for DONE.

 

2. As much as possible, the paperwork elements of the funding program should be handled outside of the Neighborhood Councils and DONE.

 

3. The funding program should be easily audited by other City agencies and offices, such as the Controller.

 

4. Neighborhood Councils should have maximum flexibility in spending their funds as long as city regulations are not violated.  There is no reason to impose percentages for various categories of spending, nor should there be requirements for full budget planning in advance of expenditures.

 

5. Neighborhood Councils should not be obligated to spend all or even any of their funds, and a specific use should be made of funds that Neighborhood Councils do not choose to spend.

 

6. Funds appropriated for the Neighborhood Council system should remain within the system and not be swept back into the General Fund. 

 

7. The purposes of the funding program are likely to evolve.  Hopefully, some of the administrative expenses will be picked up in a regional or citywide approach. Some of these future uses may create problems, e.g., if City departments view the funding program as a source of extra funds for their own programs.  Or, Neighborhood Councils may hope to use their funds to “buy” services that could be more effectively obtained by effective lobbying at City Hall.  These are wrinkles that will simply have to be worked out over time. 

 Possible Draft Motions

1. The Neighborhood Council funding program should continue at current levels of funding in the amount of $50,000 per Neighborhood Council.

 

2. DONE should set aside some funds for a competitive grant program for special projects for which Neighborhood Councils could apply for special projects.

 

3. DONE’s role as monitor of the funding program for individual Neighborhood Councils should be reduced.  DONE should continue to implement the City Council’s policies on funding Neighborhood Councils.  DONE should continue to inform Neighborhood Councils of guidelines for the use of funds, and to inform Neighborhood Councils about the avoidance of such conflicts of interest as self-dealing by Board members.  DONE should not act as the regular monitor of the expenditures of individual Neighborhood Councils.

 

4. The role of the Treasurers in the Neighborhood Councils should be reduced, and the reporting requirements of Neighborhood Councils should be simplified.  The main activity of Neighborhood Councils in the funding program should be the approval of expenditures by the Board.  Neighborhood Councils should not be required to approve an annual budget before authorizing expenditures.

 

5. The day-to-day monitoring function should be turned over to a regional or citywide fiscal agent or fiscal sponsor identified thorough a competitive Request for Qualifications.  This fiscal sponsor would authorize and pay monies as appropriated by Neighborhood Councils, in accordance with announced guidelines for authorized and unauthorized expenditures. 

 

6. The fiscal agent/sponsor will help Neighborhood Councils to obtain clerical assistance if the Neighborhood Councils choose to allocate their funds for that purpose.

 

7. For the sake of transparency, all expenditures should be noted by category.  Debit card expenditures should be logged in a manner that is transparent.

 

8. Flexibility of expenditures should be emphasized, including donations to non-profit organizations by Neighborhood Councils.  However, any such donations must be for specific, stated purposes related to the mission of the Neighborhood Council.

 

9. The Controller will continue to audit the fiscal program by examining the records of the fiscal agent/sponsor.

 

10. If Neighborhood Councils do not expend their funds after 18 months, those monies shall be transferred to a Regional Outreach Account to be spent on behalf of the Neighborhood Council programs in that region.  Neighborhood Councils may also choose to designate some of their funds for this regional outreach program at any time.  The Regional Outreach Account shall be under the control of the Regional Authority made up largely of Neighborhood Council representatives.

 

11. If a policy is enacted to allow Neighborhood Councils to subdivide, the $50,000 allocation should be given only to those Neighborhood Councils whose original population base was greater than a specified number.

 

 

Spending Patterns of Neighborhood Council Funds 2003-Present

Staff Document - Neighborhood Council Review Commission 

May 24, 2007

 

 

SPENDING BY CATEGORY
	Operations	Outreach	Community Improvement	Card/ Uncategorized	Total Expended to May 1	Total Unspent to May 1
Total	$928,581	$1,500,456	$1,679,897	$3,792,027	$7,900,961	$7,289,594
# of NCs	81	84	74	86	86	86
% of Total Spending	12%	19%	21%	48%	100%	-

 

 

SPENDING BY REGION
Region	Operations	Outreach	Community Improvement	Card/ Uncategorized	Total Expended to May 1	Total Unspent to May 1	# of NCs
East	$   120,210	$      300,813	$     359,529	$  487,951	$   1,268,503	$  1,006,497	12
Central	$   178,645	$      203,167	$     196,977	$  567,715	$   1,146,504	$  1,278,496	14
Harbor	$     75,174	$      153,535	$     218,689	$  518,511	$      965,909	$     484,091	7
N. Valley	$   151,790	$      103,082	$     234,666	$  512,886	$   1,002,424	$  1,022,576	14
South	$   147,260	$      194,319	$     163,697	$  621,723	$   1,126,999	$  1,476,055	14
S. Valley	$   169,865	$      419,652	$     345,513	$  756,798	$   1,691,828	$  1,258,172	16
West	$     85,639	$      125,889	$     160,825	$  326,442	$      698,795	$     763,705	9
TOTAL	$   928,581	$   1,500,456	$  1,679,897	$      3,792,027	$   7,900,961	$  7,289,594	86

 

 

DISTRIBUTION OF SPENDING WITHIN REGIONS
Region	Operations	Outreach	Community Improvement	Card/ Uncategorized	Unspent Funds	TOTAL	# of NCs
East	5%	13%	16%	21%	44%	100%	12
Central	7%	8%	8%	23%	53%	100%	14
Harbor	5%	11%	15%	36%	33%	100%	7
N. Valley	7%	5%	12%	25%	50%	100%	14
South	6%	7%	6%	24%	57%	100%	14
S. Valley	6%	14%	12%	26%	43%	100%	16
West	6%	9%	11%	22%	52%	100%	9

 

 

NEIGHBORHOOD COUNCIL SPENDING BY YEAR OF CERTIFICATION (INCLUDING JUNE SPENDING ESTIMATES)
Year NC Started Receiving Funds	# of NCs	Total Unspent $	Total Spent $	Ave Unspent Funds	Ave Spent Funds	Ave % of Total Funds Remaining Unspent
2003	51	$4,168,248	$6,029,899	$      81,730	$       118,233	40%
2004	18	$1,627,696	$1,288,224	$      90,428	$         71,568	54%
2005	14	$   948,388	$   509,632	$      67,742	$         36,402	64%
2006	3	$   110,787	$     57,652	$      36,929	$         19,217	67%
Total	86	$6,855,120	$7,885,406	$      79,711	$         91,691	45%

 

 

DISTRIBUTION OF AMOUNTS OF UNSPENT FUNDS (INCLUDING JUNE SPENDING ESTIMATES)
Amount Unspent	# of NCs
Less than $25,000	2