Volume 43 Number 29

Gavin Newsom’s Earth Day

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EDITORIAL Here’s a snapshot of the state of green San Francisco, as we approach Earth Day 2009:

San Francisco ought to be getting $18 million a year for energy-efficiency programs, but the money instead goes to Pacific Gas and Electric Co., which is wasting half of it.

Mayor Gavin Newsom went to Washington, D.C. to participate in a Newsweek panel on the environment and called for a transformation of the American automotive industry just a few days after the city’s transportation agency decided to cut $56 million out of Muni, increase transit fares by $30 million — and hike fees for car parking by just $11 million.

The city stands to get millions in federal stimulus money for green jobs — but nobody knows how many jobs the money will create, where they will come from, or who will get them.

This doesn’t seem the best way for one of the most liberal cities in America to respond to the environmental and economic crisis.

As Rebecca Bowe reports on page 10, PG&E is managing part of a multibillion dollar program aimed at cutting electricity demand. It’s a laudable goal — in fact, the cheapest way to reduce the use of fossil fuels and dirty power is to use less in the first place.

But the private utilities are a bad fit for any program that seeks to cut demand. Every year PG&E tells Wall Street how it expects to grow — and since the company’s product is electricity and natural gas, that means PG&E has no incentive at all to shrink its market. Not surprisingly, the giant utility has done a crappy job of running the program, failing to meet even its modest goals.

But state law allows cities to apply to run the local programs themselves — and data from across California show that public sector, non-utility programs do a far better job of lowering electricity use. So why isn’t San Francisco applying for that money? Because the San Francisco Public Utilities Commission thinks it’s "premature."

That’s crazy — the money could create local green jobs, reduce energy demand, and cut PG&E waste. It’s an obvious choice, and the supervisors should pass a resolution directing the PUC to take on this program.

The supervisors no longer have control over Muni fare hikes, but when they examine the city budget, they should take a hard look at what Newsom’s transit planners are doing. Cutting bus service during a recession, when low-cost transportation is needed more than ever, is generally a bad idea. So is raising Muni fares. Why are the car drivers, who are generally richer (and many of whom are commuters from wealthier suburbs) getting off so cheap?

The supervisors also need to be monitoring closely the federal stimulus money and the creation of green jobs. The single most important thing San Francisco can be doing right now is creating jobs in the green economy. In fact, there ought to be a city loan fund just for local green-collar startups. Instead, while Newsom is prancing around the country running for governor, his staff seems flummoxed by the whole process. The city needs a goal — say, 5,000 new green-collar jobs for unemployed San Franciscans in the next five years — a plan to create them, and a program to use the available federal money.

Newsom seems to have plenty of ideas for Detroit. We’d love to see him start to focus on San Francisco. *

No balance in two-year budget

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OPINION There’s no more important decision made by the Board of Supervisors than that of the city’s annual budget. Every year the board sets the city’s priorities by appropriating more than $6 billion. In good economic times, the board uses the budget process to set new policy directions for San Francisco. In bad times, the annual budget is the board’s only real chance to save vital services by making targeted appropriations while strategically reducing other parts of the budget.

That’s why a charter amendment to have only biannual budgeting is a bad idea.

The fact that a two-year budget is being pushed by the Newsom administration and the San Francisco Chamber of Commerce should give progressives pause. Unfortunately, downtown forces have successfully used the worst budget year ever to woo some progressive budget stakeholders.

Their argument sounds good on its face. A multiyear budget would help smooth out the highs and lows, requiring City Hall to deal with pending fiscal emergencies sooner. It would also mean every other year off from having to spend all that energy turning people out to endless budget meetings and lobbying to save the programs we care about.

But the way a two-year budget would actually play out would mean that progressive budget stakeholders would have only half the opportunities for budget input through the generally more responsive Board of Supervisors. Meanwhile, the Mayor’s Office would be able to centralize more power without having to get annual approvals from the board. In other words, a two-year budget would make the Office of Mayor even more insulated from the public and members of the board on the decisions that affect us the most.

Additionally, two-year budgets would be unwieldy and inaccurate. Over the past nine years of out-year projections by the Controller’s Office, the average difference between the projected and actual surplus or deficit was nearly $250 million. For example, last year the controller estimated our 2009-10 budget deficit would be about $46 million. This year it’s pegged at $438 million. Of course, as our real revenue data comes in, this number will surely change again. Unfortunately, we won’t know how much revenue we received for this upcoming budget year until we are a month or two into the following fiscal year.

There are serious flaws with our annual budget process. In difficult years, the mayor has too much unchecked power to make mid-year budget changes. Earlier this year, Mayor Gavin Newsom enacted a $118 million budget package that included tens of millions in health and human service cuts and more than 400 layoffs without approval of the Board of Supervisors. Meanwhile, when a majority of board members voted to cut pork from the mayor’s budget, he was able to avert that cut with his veto pen.

Leaving the decision about millions of dollars’ worth of service cuts in the middle of the year turns the democratic budget process — with checks and balances between the mayor and board — on its head. Correcting this problem with the current budget process would surely be a worthwhile effort.

Meanwhile, we must stay focused on this year’s budget process to preserve as many of the vital services as we can. *

Sup. Chris Daly represents District 6. Ed Kinchley is a labor activist.

 

SF Weekly’s deadbeat dad

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The company that owns SF Weekly is positioning itself to become the greatest deadbeat in the history of the alternative press.

Village Voice Media, the 16-paper chain, owes the Bay Guardian close to $20 million as the result of a year-old jury verdict in a predatory-pricing lawsuit.

After a six-week trial in the spring of 2008, the jury found that the Weekly had intentionally sold ads below cost over a period of years, losing millions in the process, in an effort to put the locally owned competitor out of business.

But while the case is on appeal, VVM hasn’t posted an appeal bond — that is, a guarantee that the defendant will pay up after the appeals are over. That’s highly unusual for a business that isn’t claiming insolvency – and since there’s no bond, the Guardian is free to start collecting the money.

However, the Guardian lawyers have gotten a clear message from VVM’s legal team in a variety of communications over the past months. In a July 18, 2008 legal filings and subsequent disclosures, VVM claims that it owes a consortium of banks, led by the Bank of Montreal, $92 million — and that those banks have a prior claim on all of the company’s assets.

That suggests that the entire chain is worth less than $92 million — something that stretches credibility even in these difficult economic times. In 2007, the company listed assets of $191 million, documents presented during the trial showed.

If the current claim is true, then VVM has lost more than half its value in just two years and is technically underwater, much like the homeowners whose mortgages exceed the value of their property.

The VVM lawyers are also claiming that the company’s assets are set up in such a way that the Guardian will never be able to reach the money.

That leaves the largest alternative newspaper publisher in America in the remarkable position of saying that it’s prepared to duck a legitimate debt, to defy a jury and court order and hide its assets — like a media version of Bernard Madoff.

Asset-protection is a booming area of law, and in some cases, it’s considered entirely appropriate and ethical. Plenty of businesses — and increasingly, surgeons, dentists and others subject to a high risk of lawsuits — set up subsidiary companies, limited liability companies and other corporate structures to protect them from potential creditors.

But creating such a scheme to avoid paying a valid debt, particularly a court judgment, is frowned on both by legal experts and courts.

“It is never ethical to devise or implement a scheme to deprive a legitimate creditor of access to your assets,” Marjorie Jobe, an El Paso, Texas business litigation attorney and an expert on asset protection, told us by email. “It is never ethical not to pay or satisfy a legitimate debt.”

Adds Jay Adkisson, a Newport Beach lawyer and the author of a leading book on asset-protection: “Typically, it is considered unethical to transfer assets to harm a legitimate creditor.”

There are, experts point out, asset-protection programs that are both legal and ethical — and while Jacob Stein, a Los Angeles attorney who lectures regularly on the topic, told us there’s no “bright line,” it typically depends on the timing.

“If a business has a legitimate reason for setting up an asset-protection plan, that’s entirely proper,” Stein told us. “But if it’s done after a judgment is in place, it’s not a good idea.”

Added Jobe: “the asset protection plan needs to be deliberate and not aimed at only one creditor.”

At this point, only VVM executives and their lawyers and bankers know for sure when the asset-protection scheme was devised. The Guardian‘s legal action began in 2002; if the program had been in place prior to that, it would be easier to defend. But if money is moved out of a company to frustrate a creditor, that can run afoul of laws that govern improper transfers.

“If you do something to stiff your creditors, the fraudulent transfer laws come into play,” Adkisson said.

When companies have debt that exceeds their ability to pay, a typical option is bankruptcy – that’s what more than 70 asbestos companies have done in the United States. Bankruptcy isn’t perfect for creditors, and there’s a lot of controversy over the practice, but at least it allows a court to supervise a plan to pay some of the debt. And in a bankruptcy, the shareholders of a corporation are wiped out.

In this case, VVM is placing itself in a strange and potentially perilous situation. The company is saying that it’s protected from any judgments, and thus from any creditors — meaning that any vendors, suppliers, contractors or other creditors that VVM decides to stiff would have no easy legal recourse.

But there’s no bankruptcy and as far as we know, the company is paying its other debts. So VVM is apparently seeking to stiff a single creditor – which in itself is a legal issue — and is doing so while the shareholders, including those who participated in an illegal predatory pricing scheme, pay no penalty at all.

The ultimate problem with these schemes is that, in the long run, they don’t always work. “There are very few ways to do this that are bulletproof,” Stein, who creates asset-protection programs for a living, explained. Instead, the experts tend to agree, asset-protection is mostly about delaying justice — it’s a way to make it expensive and time-consuming for a creditor to get to the money. It’s a legal game, a tactic to frustrate a less-well-funded individual or company by dragging the legal issues out even further.

“It’s my perspective that if a debtor has money, there’s a way to get to it,” Richard Goldstein, a lawyer and expert in collections, told us. And, of course, the Guardian is mounting an aggressive collection effort.

It’s quite a length to go to in an effort to avoid paying a competitor who was harmed by illegal pricing and predatory competition. “In the end,” Goldstein said, “there are only two ways to avoid a judgment. You can have no assets at all, or you can undermine your own business and your own company to make it hard for someone to collect a debt.”

Calls to the Bank of Bank of Montreal, were not returned by press time. However, VVM Executive Editor Mike Lacey posted a long response to our written questions on SF Weeky’s blog.

In between insults, he responded — sort of — to a few points we raised.

He said, for example:

“The case is on appeal. You are not entitled to a penny.”

That’s wrong. By law, if VVM had posted an appeal bond, The Guardian would be unable to collect until the appeals had run their course. Of course, a bond would guarantee that the Guardian ultimately would get the money if the verdict were upheld.

With no bond posted, the Guardian has every legal right to begin collecting the judgment.

Lacey states that “I’m not going to discuss our banking relationship with a miscreant who makes up slander. Perhaps your lawyers can enlighten you. (But if your lawyers have led you into a blind alley, do you really trust their insight?)”

Interesting comment, considering that our lawyers — Ralph Alldredge, Richard Hill and E. Craig Moody — not only won the case, in front of a jury, but won a California Lawyers of the Year award from California Lawyer magazine for the case, which the magazine called one of the most important lawsuits of the year.

Most of the rest of his statement is a rehash of the claims VVM threw out in court — all of which were proven false. The final word on those claims came from a jury of 12 San Franciscans, who agreed unanimously that Lacey’s company had engaged in illegal predatory pricing and awarded the Guardian damages.

PS: The other banks in the consortium led by Bank of Montreal are BNP Paribus, Brown Brothers Harriman & Co., Rabobank, U.S. Bank, Wells Fargo, and Westlb AG. If we hear from any of them we’ll let you know.