Taxpayers Will Be Hit With Giant Bill
The mushrooming Rampart scandal the largest in LAPD history will end up costing from $400 million to nearly $1 billion, or more, according to City Hall sources and others.
And who will pay the lion’s share of that cost? Taxpayers at the city, state and federal levels.
“The liability to the city is going to be huge,” said Erwin Chemerinsky, professor of law at USC. “But how huge at this stage is anyone’s guess.”
Maybe so, but interviews with lawyers, academics and government officials shed some light on the financial ramifications of what District Attorney Gil Garcetti is calling the “largest Los Angeles Police Department scandal in history.”
By far the biggest expense will be direct liability resulting from lawsuits filed by parties claiming to have been mistreated by the police. Other costs will come from hiring additional staff at the City Attorney’s Office and District Attorney’s Office, developing and instituting reforms at the LAPD, retaining outside law firms, processing mountains of paperwork, and various other activities.
Plus, there are hidden costs. When juries lose faith in the police department, suddenly every case alleging police abuse seems winnable. Some experts say the publicity on the scandal, which already has resulted in at least 20 officersbeing relieved of duty and 40 criminal convictions being overturned, will be like a siren call to all those who feel they might have been victims of bad cops.
As to where the necessary money will come from, Mayor Richard Riordan has proposed bonding against the money owed the city from the tobacco settlement.
The city is in line to receive $300 million over 25 years as its part of a nationwide master settlement agreement struck with four big tobacco companies, Philip Morris Cos., R.J. Reynolds Tobacco Holdings Inc., Brown & Williamson and Lorillard.
But the $100 million the city could expect to get from that tactic would likely fall far short of covering all of the costs.
Read Riordan’s lips
The mayor has promised that taxes will not go up as a result of the scandal, but the litigation is expected to drag on for years, and Riordan leaves office in June 2001. Even if his promise is kept, the money would either have to come from the state or from the L.A. city general fund, which would result in city services and/or programs being cut.
Could the case bankrupt the city? It’s unlikely, several sources agreed. Because the city has an operating and capital budget of $4.2 billion, Deputy Mayor Jennifer Roth said there are no concerns about L.A. going under.
But the scandal is going to have a significant fiscal effect.
“It’s going to hurt,” said Alan Kotin, a principal with the urban economic analysis firm of PCR Kotin. “It’s going to be money spent that doesn’t contribute to the quality of life.”
Any estimate of the cost for the Rampart scandal, or the number of parties that will eventually sue, is admittedly speculative. Further complicating cost estimates is that the expense of each case could vary widely, depending on the damage each individual suffered. Someone who was wrongly detained by an officer will likely receive far less than someone who was wrongfully imprisoned.
“Bandying about any numbers is vastly premature,” said City Councilman Mike Feuer, chairman of the council’s Budget and Finance Committee. “We haven’t evaluated liability with any degree of care.”
Nonetheless, numbers are flying through the air. It has been widely reported that the cost of the first 99 cases alone could be $125 million, although most informed sources agree that the final number of suits against the city will be much higher.
“We are looking in a very serious way at 200 to 300 cases being filed,” said Garcetti.
Plaintiffs’ advocate
Lawyer Steve Yagman, whose firm already represents 10 plaintiffs in Rampart-related cases, said he believes many more people will sue and that the city’s direct liability will end up being $1 billion. On his Web site, Yagman lists 17,000 people who were potentially wronged by officers who have already been identified as possibly being corrupt. He said that list could reach 34,000 by the time the dust settles.
“The potential number of cases is gargantuan,” said Yagman. “It could be potentially apocalyptic in terms of the financial impact.”
Whether the city decides to settle or go to court, it will have to compensate the victims of police brutality.
Chemerinsky of USC said that in instances in which a person can prove he or she was framed by the police, it is not unusual to see a settlement or a damage award of more than $1 million. If cases go to court and the city loses, it also would be liable for the plaintiff’s legal costs.
So if 250 people end up suing, and the average cost to the city is $1.5 million per case, liability costs alone would be $375 million. If Yagman is right, and 17,000 people sue, direct liability would be closer to $25 billion, although no one else believes the number will be that high.
Direct liability is far from the only cost of the scandal. To prosecute the dirty cops and defend the city against suits, more lawyers will be needed in both the District Attorney’s Office and the City Attorney’s Office.
Garcetti said he currently has 30 people dedicated to the Rampart scandal. The team consists of 19 lawyers, earning an average salary of $90,000 each, and 11 staff people, earning an average of $40,000 each. That comes out to $2.15 million a year, and Garcetti estimates that his office could be prosecuting police officers for the next two to three years.
City Attorney’s response
On the city side, officials have asked for six additional lawyers and 10 additional support staff to help handle the extra work from the Rampart case.
If these lawyers and support staff earn the same as the additional staff in the District Attorney’s Office, the city will be looking at an extra cost of $940,000 per year.
Additionally, outside lawyers will be needed to handle conflicts in which the City Attorney’s Office cannot represent certain officers. Cecil Marr, manager of the City Attorney’s police division, said outside lawyers will be required on almost every case.
“For every lawsuit in the Rampart situation, there will be at least one officer named who the city will have a conflict of interest representing,” said Marr.
The going rate for outside lawyers is $125 per hour, according to Bill Koenig, chief administrative analyst for the city. The most the city can pay is $25,000, without going to the City Council for more funding. Koenig said his office has asked the council to authorize up to $50,000 for each Rampart case.
If each case did cost $50,000 and 250 people filed suits, the cost to the city in legal fees alone would be $12.5 million.
“If a firm is on retainer, sometimes rates are negotiated in advance,” said Steve Frates, a senior fellow at the Rose Institute of State and Local Government at Claremont McKenna College. “But the meters on these things can run hard, quickly.”
Then there are hidden costs. To illustrate, Feuer cited one recent case brought before the council involving police going into the wrong house on a drug bust. Several people were detained for less than an hour.
The city was anticipating a settlement of a few hundred thousand dollars, but according to Feuer, the council balked at settling because it seemed like a case the city could win after all, no one was hurt.
“The jury ended up awarding more than $850,000, in part because police credibility was hurt (due to the Rampart scandal),” said Feuer.
There’s also the cost of reforming the police department. The City Council recently wrote a “blank check” to the Police Commission to investigate the corruption. And last Wednesday (Feb. 23), Police Chief Bernard Parks announced that the FBI would be joining the investigation.
While the city will not have to pay the FBI’s expenses, the expansion of the investigation could mean that more corruption will be ferreted out. In addition, of course, all FBI activities are ultimately paid for by U.S. taxpayers, including those in Los Angeles.
“I don’t think we’ve calculated the cost,” said Parks. “But I’ll be glad to report on it when the investigation is finished.”
Chief Deputy Controller Tim Lynch said the “blank check” is largely rhetorical because the city budget has reserve funds for researchers and a special task force. “We’re talking about the salaries of a few dozen people,” he said.
But LAPD reform could be more costly.
Already Parks has asked for $9 million to improve Internal Affairs and administrative oversight within the police department. On March 1, the Board of Inquiry will release its report outlining recommendations for changes in the department that will probably include some kind of price tag.
“We’re going to be analyzing that report, but until we see it, we’re in the dark about cost like everyone else,” said Dennis Zine, vice president of the L.A. Police Protective League.
To quell taxpayers’ fears about the cost, Riordan recently announced a proposal to bond against the money the city is expected to receive from the tobacco settlement.
Under the plan, the city would issue $100 million in bonds, and then use the $300 million stream of tobacco money over 25 years to service those bonds. The proposal does not require voter approval because it is a separate revenue stream, and according to Deputy Mayor Jennifer Roth, it would not impact the city’s credit rating.
“This is the best use for these dollars,” said Riordan.
But already, the proposal has its foes. Richard Corlin, speaker of the house of delegates of the American Medical Association, calls the idea “an obscene perversion” of what the money is supposed to be used for.
“It was the clear understanding of everybody involved (in the tobacco settlement) that these funds were not to be considered extra general fund money,” said Corlin.
Tobacco funds controversy
Although other states have similarly accelerated their tobacco payments (Texas has proposed bonding the money to pay for school construction), Corlin said there is a growing movement to protest Riordan’s plan.
At a state level, Assemblyman Gil Cedillo, D-Los Angeles, is outraged that Riordan would propose using the tobacco funds for the Rampart scandal. He said the money should be used for its original purpose, health care and education.
“No matter what the magnitude of this problem, I would say the problems relating to health care are more serious,” said Cedillo.
And some of the tobacco money, $5 million per year over the next four years, already has been earmarked for curb cuts for the disabled to head off a federal lawsuit.
“That cost will now come from the general fund,” said Feuer.
But whenever a cost is added to the general fund, something else has to give. According to Frates, that money is either going to come from cuts in city services and/or programs, from an increase in city taxes, from the state, or from some combination of those sources.
Frates hypothesized that if there are expenditure cuts, they would be from areas like parks and libraries.
“Typically, the City Council will hit things that are politically popular to rally the citizens to demand the money be put back in,” said Frates. And in response to such demands, the council can more easily justify supporting an increase in city taxes.
When asked if he anticipates service cuts as a result of the corruption, Feuer paused before answering, “No, at least not now.
“I do see the potential for some decrease in expansion of services that wouldn’t have happened if it hadn’t been for Rampart,” said Feuer.
State assistance
Frates added that there may be some incentive for the state to kick in, either directly or by pitching in more money for other budget lines, thus freeing up money from the general fund.
“The city should have some influence with the state,” said Frates. “L.A. is an important political entity right now.” (Gov. Gray Davis, Assembly Speaker Antonio Villaraigosa and Speaker-Elect Robert Hertzberg are all from Los Angeles.)
Officials reached in Sacramento said it was premature to discuss whether the state ultimately would help cover the cost of the police scandal.
Of course, there’s always the possibility of a tax hike, which would require voter approval. Kotin said that with the good economy, there is the slim possibility that voters would be willing to pay more taxes to protect the existing level of services.
“If you look at the suburbs, there has been a willingness to pass new taxes,” said Kotin. “It is possible that a direct or indirect consequence of Rampart will be higher taxes.”
One place the money won’t be coming from is an insurance company. According to Chief Deputy Controller Lynch, the city is self-insured.
Although the city does have a litigation contingency fund, Lynch said it is only budgeted for $60 million, which covers the city’s normal liabilities.
“And we usually use most of it,” said Lynch.
