Washed It!

In a blow to the state’s civil lawsuit charging eight current and former Bell city leaders with plotting to enrich themselves at taxpayer expense, a Los Angeles County Superior Court judge warned Thursday that Atty. Gen. Jerry Brown’s case is in jeopardy of being dismissed.

Brown appears to have overreached his authority in the lawsuit, which seeks to force the city leaders to pay back hundreds of thousands of dollars in back salaries and slash their future pensions, Judge Ralph W. Dau said.

The judge also questioned whether the suit, filed at the height of Brown’s contentious run for governor, was more about politics than law.

“There is a real question of authority here,” said Dau during a hearing Thursday. “You say they’re looting the city and you can enforce it, but where is the case that says the attorney general can enforce it?”

Dau added, “So I’m wondering, is this just a political lawsuit?”

On Thursday, the attorney general’s office responded, telling the judge the state has the authority to pursue a civil claim on behalf of residents and taxpayers.

The sweeping civil lawsuit was the first legal action taken against the city and its current and past leaders. The suit contends former City Administrator Robert Rizzo and others conspired to drive up their salaries, inflate their future pensions and conceal how much it was costing the city.

“They engaged in a collaboration that amounted to a civil conspiracy to defraud the public, Brown said when he announced the suit at a Los Angeles news conference in mid-September.

Besides Rizzo, the suit named former Assistant City Administrator Angela Spaccia, ex-Police Chief Randy Adams, Mayor Oscar Hernandez and council members Teresa Jacobo and George Mirabal. The suit also named George Cole and Victor Bello — both former council members. Rizzo was being paid nearly $800,000 a year and stands to collect about $1 million annually in retirement.

Dau ruled that some of the claims in the lawsuit, including an allegation that Bell’s leadership conspired to waste public funds, could proceed, but that other allegations would have to be revised. Still, the judge cautioned that the entire case is in doubt.

Dau agreed the lucrative salaries paid to Rizzo and others were outrageous and said he appreciated the depth of anger that Bell residents now feel. But, he said, the place to resolve those concerns should be the “ballot box and criminals courts,” not civil court.

Outside the downtown Los Angeles courtroom, Rizzo’s attorney predicted the state’s widely publicized lawsuit will be dismissed.

“This case is dead, ” James Spertus said.

When the suit was filed, some legal experts called it an unprecedented tactic by a government agency, and Brown himself conceded his office was exploring a “novel” area of the law.

“We’re testing the proposition of what public officials can pay themselves,” he said. “The fact that someone is elected doesn’t mean they get a license to steal.”

Even if Brown’s lawsuit is ultimately dismissed, it would have no bearing on the felony fraud and theft charges filed against Rizzo and others. The U.S. attorney’s office, the Securities and Exchange Commission, the state controller’s office and the state Department of Corporations also are investigating the city’s financial activity.

Dau also rejected an effort by Spertus to prevent the city from obtaining Rizzo’s private e-mails. The city has already received about 4,000 e-mails from Rizzo’s private e-mail provider. The city contended Rizzo used his private e-mail to conduct city business in an effort to conceal his activities.

About 10 of the e-mails involved potential attorney-client privilege issues, defense attorneys told the judge.

City Atty. James Casso agreed to delete one e-mail involving Spertus and Rizzo, but the city will be able to retain e-mails between Rizzo and Tom Brown, a former attorney for the city.

Casso said his office is interested in determining whether the city — in effect — paid for Rizzo’s defense costs in a drunk-driving case. Rizzo was arrested of suspicion of drunken driving after crashing into a neighbor’s mailbox in Huntington Beach.

richard.winton@latimes.com

Attorney general’s lawsuit against Bell officials could be in jeopardy

The California attorney general’s office on Thursday significantly widened its probe into the city of Vernon, issuing subpoenas for information on high salaries, lavish travel bills and pension costs for six former and current officials.

The action comes two days after L.A. prosecutors filed charges of conflict of interest and misappropriation of public funds against Vernon’s former city administrator and Los Angeles County Dist. Atty. Steve Cooley suggested the scandal-plagued city be disbanded.

In addition to the Vernon action, Atty. Gen. Jerry Brown’s office Thursday unveiled plans to seek a court-ordered monitor to watch over neighboring Bell, which has been hit by a corruption scandal that has resulted in criminal charges against eight current and former officials. All eight pleaded not guilty on Thursday.

In an interview, Brown said the compensation received by top Vernon officials — which in one case topped $1.6 million — was excessive and that attorneys in his department were trying to determine whether a lawsuit should be filed.

“I’ve never seen anything like it, it’s so egregious,” said Brown, who is running for governor. “It’s clear to me that we need a state authority to set some standards and curb these excesses.”

So far, the Los Angeles district attorney’s investigation appears to have focused primarily on Donal O’Callaghan, the former city administrator who was indicted by a Los Angeles grand jury on charges regarding two contracts the city established with his wife.

The attorney general is now demanding that Vernon make officials available for testimony regarding the compensation and perks received by former city attorney and city administrator Eric T. Fresch, Finance Director Roirdan S. Burnett, former City Atty. Jeffrey Harrison, former City Administrator Bruce Malkenhorst Sr., and former City Clerk Bruce Malkenhorst Jr., as well as O’Callaghan.

Those six constitute the last decade of leadership in Vernon, a small, well-heeled industrial city just south of downtown Los Angeles. Vernon has been dogged for decades by claims that it is run by a small fiefdom of well-connected people who use the city of 90 residents to generate large incomes.

The Times reported this summer that those six officials all earned more than $500,000 in at least one of the last five years, with Fresch, a former city administrator who now works as a legal consultant, making $1.65 million in 2008.

The Times also reported on luxurious travel expenses billed to the city by Fresch, O’Callaghan and other Vernon officials. In one February 2007 trip, the two former city administrators flew first class with a financial advisor to New York, at a combined cost of $12,700. They stayed at the Ritz-Carlton and dined at the Four Seasons. Fresch alone spent $7,600 over four nights at the upscale hotel.

Fresch often commuted to work from the San Francisco Bay Area and billed the city for first-class flights. O’Callaghan was reimbursed for trips to Ireland and Sweden.

Brown’s subpoena also seeks testimony on “pension or other retirement benefits” for the Vernon officials. The exact focus of this part of the investigation is unknown. But The Times reported in September that Fresch, Harrison and other Vernon attorneys would receive an enhanced pension package typically reserved for police, firefighters and other safety workers.

Vernon reclassified its attorney positions as “safety employees” in 2004, which entitles them to more lucrative pensions and earlier retirement. In a letter signed by then-City Administrator Malkenhorst Sr., the city told CalPERS that its attorneys were “primarily engaged in the active enforcement of criminal laws.” But a former Vernon police chief told The Times that he could not recall a single instance when Vernon’s city attorneys prosecuted a case in criminal court.

Vernon City Manager Mark C. Whitworth released a statement Thursday saying the city “has fully cooperated with the attorney general’s investigation, and we will continue to do so.”

Neither Fresch nor O’Callaghan could be reached for comment.

Brown did not give a time frame for his office’s investigation into Vernon beyond the start of testimony Nov. 10. He said that the subpoena was meant to get information “on the record.” Although it requires only one designee to testify, Brown said it is possible several Vernon officials would be deposed.

“They know who knows, and they’re supposed to tell us and then we will go from there,” he said. “We want to hear who knows, and we’ll keep digging.”

Brown also said his office is pushing ahead with creating a monitor who would have wide-ranging access to city affairs in Bell, where four of the five council members were charged with public corruption.

A court hearing on the proposal was scheduled for Nov. 17.

State widens inquiry into Vernon

Jerry Brown and Meg Whitman go round and round: quibbling over the slur someone in Brown’s camp used to describe Whitman and how offensive it was (or wasn’t) and whether Brown should (or shouldn’t) be more contrite. This drives Kim DuPont crazy.

DuPont, a political independent and Whitman supporter, said after Brown apologized in their last debate, “She should have just accepted, and they both should have gotten on with it.”

DuPont ticks off her concerns: jobs, the economy, making Sacramento more business-friendly. “Those are the issues affecting the state and our place in the world,” said DuPont, 50, a financial consultant in the agriculture industry. “Those are what matter.”

The race for governor has been long, contentious and, by far, the most expensive in history. To many in this rural stretch of Central California, it has also been a disappointment: feeding their cynicism, taxing their patience — they long ago tuned out the incessant advertising — and instilling little faith that either candidate can deal with the state’s paralyzing dysfunction.

The last several weeks of the campaign, dominated by debate over an inadvertently recorded epithet and Whitman’s illegal immigrant housekeeper, have seemed especially pointless.

“A sideshow,” said Margo Michael, a cook. “Silly,” said Jerry Caperton, a retired firefighter.

For the last 16 years, San Benito County has been California’s political bellwether, a slice of rich farmland just south of the San Francisco Bay Area with an unparalleled record of matching statewide voter sentiment. In 2002, Gray Davis won reelection with 47% of the vote; in San Benito County he received 49%. In 2006, Gov. Arnold Schwarzenegger cruised to victory with 57% support. In San Benito County, he got 56%.

If the pattern holds this November, and if San Benito again speaks for the rest of the state, then neither candidate will run away with the contest.

Democrat Brown and Republican Whitman have their partisans: people who believe political experience (in Brown’s case) or business acumen (cited by Whitman backers) would be just what’s needed to shake up Sacramento (the way politicians always pledge).

But many more voters echoed Chuck Obeso-Bradley, who was not particularly enamored of either candidate and regarded their promises, and their charges and countercharges, with a good dose of skepticism.

A Democrat, he leans toward Brown (“holding my nose a bit”). But he thinks it will be some time before the state cycles from recession to recovery, regardless of the outcome Nov. 2. “I’ll support whoever wins and wish them both Godspeed,” said Obeso-Bradley, 56, the sales manager for a software company. “They’re going to need it.”

With about 55,000 residents, roughly the population of Arcadia or Cerritos, San Benito is more rural and Latino than California as a whole. There are relatively fewer college graduates and a slightly higher proportion of registered Democrats.

But the economic hardship — the bankruptcies, jobs lost, homes foreclosed, businesses hanging by the merest of threads — are familiar to many Californians battered by the Great Recession.

In some ways, San Benito County had it worse. Even before the housing bubble burst, regulators imposed a local building moratorium until a new sewage plant was built. The work was finished just in time for the recession, which devastated the construction industry. Unemployment, always subject to the vagaries of the agricultural season, peaked near 22% in February.

There have been hopeful signs of late. Unemployment was 14.8% in August (compared to 12.4% statewide.) A long-awaited expansion of the Hollister airport may finally go forward, and the county could land a new solar farm, with the promise of as many as 650 jobs.

Still, not one person in more than 40 interviewed felt good about the direction things were headed, a contrast with 2006, when business was robust and state lawmakers passed a budget the day before the July 1 start of the fiscal year — with a surplus.

“Sacramento keeps rolling on, like it always has, but things are out of control,” said William McDonald, 39, a courier for the San Benito County Health Department and an undecided independent. “It’s October, and they’re just now barely passing a budget?”

Even though Schwarzenegger is not on the ballot, the governor loomed large in the minds of many. That has not helped Whitman. She is running on the same outsider message Schwarzenegger used in the 2003 recall election, and several voters suggested his years in office didn’t work out too well.

“He was new. He was fresh. I thought, give it a shot,” said Bob Rowlands, 59, a Democrat who sells evidence-tracking software to police agencies. “Now Whitman is talking about running Sacramento like a business, but running a business and running the government aren’t the same. Brown may not have all the answers, but at least he knows the lay of the land.”

Whitman has spent more than $140 million on the campaign — the vast majority from her own pocketbook — and that alone has put some people off, including Peggy Neubauer, a Republican who may vote Democratic for the first time in her life.

“It’s all about feeding her ego: ‘I’m going to be the governor of the biggest state in the union,’ ” said Neubauer, 55, who owns a struggling real estate and property management firm. “Well, you can’t buy it. And if she gets there, she’s going to have all the problems Arnold had, without his finesse.”

The controversy over Whitman’s illegal immigrant housekeeper — the candidate said she did not know her status until just before the woman was fired — apparently swayed few people. Mary Martinez, 67, a retired bookkeeper and political independent, was ready to back Whitman but will skip voting in the governor’s race. “I don’t like the way she was treated,” said Martinez, referring to the maid’s brusque dismissal after nine years of employment.

But most of those interviewed waved off the matter as a diversion cooked up by Democrats. That included many Brown supporters, like Lauretta Avina, 46, who suggested that candidates “do what it takes to get elected. They play dirty on both sides.”

While Schwarzenegger shadows Whitman’s campaign, Brown has to contend with the record of another California governor: himself.

“I remember him saying they weren’t going to spray for the Medfly, and then all those planes came overhead spraying all over the place,” said Jan Van Erven, referring to Brown’s equivocating stance during the 1980s agricultural infestation. Van Erven also remembered Rose Bird, the state Supreme Court justice who overturned 64 death penalty convictions and became a soft-on-crime symbol to Brown critics.

“Brown had his shot,” said Van Erven, 62, a Republican-leaning independent. “I think Whitman could do a better job dealing with the Legislature, which is nothing but a bunch of hard-core liberal Democrats.”

Unless asked, no one talked about the latest campaign flap involving someone close to Brown using the word “whore” to describe Whitman for allegedly cutting a deal to win an endorsement. The private conversation was picked up on voicemail, after Brown thought he had hung up the phone.

Caperton, 70, the retired firefighter, was typical of the overwhelming majority who rolled their eyes or simply shrugged off the remark. “You have to wonder what she calls him back in her office when no one’s listening,” he said, laughing. Unhappy with the choices, he may not vote for anyone for governor.

mark.barabak@latimes.com
State’s bellwether voters want more attention paid to issues

The U.S. Labor Department issued a critical report on enforcement of workplace safety in California on Tuesday and ordered the state to fix myriad problems, including poor training of safety inspectors and delays in responding to complaints.

Federal officials took aim at the state Division of Occupational Safety and Health, saying, among other things, that inspectors do not always review a company’s history statewide before deciding whether to cite it for repeat violations. They also found that the division’s appeals process “falls short.”

The problems found with California’s program were “relatively serious, especially with the appeals board,” said Jordan Barab, deputy assistant secretary of Labor for occupational safety and health.

The Labor Department’s review mirrors many of the findings of a Times investigation last fall that found the division’s appeals board repeatedly reduced or dismissed penalties levied by health and safety inspectors, even in situations in which workers died or were seriously injured.

The Times highlighted the case of Bimbo Bakeries USA, where nine employees have lost parts of fingers or a limb in several California plants since 2003. After most of those accidents, investigators found that baking machines did not have proper guards to prevent employees from reaching in to dislodge dough that got stuck. It is not clear that inspectors recognized the problem as a pattern across the plants.

Many of the penalties levied by the Cal/OSHA were dismissed or reduced on technicalities by judges working for the appeals board, so the company wasn’t required to immediately fix hazards.

The Times focused on several serious examples, including the case of a worker on the Golden Gate Bridge, Kevin Scott Noah, who plummeted 50 feet to his death.

A Cal/OSHA investigator concluded that the contractor had not provided employees with scaffolds; it issued three “serious” citations and a $26,000 fine, records show.

The contractor appealed on the grounds that Cal/OSHA had issued the citations to Shimmick Obayashi, the name listed on the company’s business cards. The company’s full name was the Shimmick Construction Co. Inc./Obayashi Corp.

An administrative law judge tossed the case out, writing that Cal/OSHA had failed to determine the company’s legal name.

Candice Traeger, chairwoman of Cal/OSHA’s appeals board, could not be reached Tuesday for comment

Workplace safety advocates hailed the federal government’s action, saying it underscored that safety in California has been suffering for years.

“I don’t think people realize how broken our system is,” said Gail Bateson, executive director of Worksafe, a nonprofit that advocates for workers.

But Len Welsh, the chief of the state’s Division of Occupational Safety and Health, took issue with some of the more than 40 findings about his division.

“They got a lot of stuff frankly wrong, and embarrassingly so,” he said. For example, he said, one finding accuses the division of not opening investigations into seven fatal accidents quickly enough. But another finding says there were two such accidents. When his office questioned the findings, federal officials couldn’t explain the discrepancy, he said.

Cal/OSHA and the appeals board have 30 days to respond to the report and develop corrective plans.

The general review of California’s program was part of a larger examination of all 25 U.S. states that run their own workplace safety programs under the jurisdiction of the federal program. Serious problems were also found with Hawaii’s program, which could be taken over by the federal government.

jessica.garrison@latimes.com
Cal/OSHA ordered to improve workplace safety

By announcing major changes in his economic team ahead of the midterm elections, President Obama is hoping to galvanize a listless Democratic base that has been unimpressed with the administration’s efforts to ease unemployment and buoy the still-troubled housing market.

The two key moves — Lawrence Summers’ exit as top economic advisor and Elizabeth Warren’s ascendance as a consumer protection czar — are widely viewed as overtures to liberal Democrats, a voting bloc that must turn out in large numbers if the party is to stave off deep losses in the Nov. 2 congressional elections.

“Larry Summers was never that popular with the base, and this president is desperately trying to mobilize the base between now and November,” said Stephen Wayne, a government professor at Georgetown University.

“Elizabeth Warren coming and Larry Summers going, these are moves designed to placate the Democratic base and mobilize it as we approach the election,” Wayne said.

At the same time, administration officials insist Obama does not intend a broad retreat from his economic policies.

“The change in personnel is not going to affect the course that we’re on,” said Jared Bernstein, chief economic advisor to Vice President Joe Biden. “We’re going to build on the momentum that the policies have helped to create.”

Indeed, there is little else Obama can do to lower the jobless rate, reduce home foreclosures or improve growth before the November elections. The economy moves too slowly for that, and so does Congress.

On Thursday, for example, congressional Democrats indicated that they might put off a crucial decision on whether to extend temporary, Bush-era tax cuts until after the November election.

Obama announced this week that Summers would be leaving at the end of the year, the third member of his economic team to make departure plans public in recent weeks. Summers had long planned to return to Harvard, but announcing the move now is seen as giving Obama a political boost ahead of the elections.

A week ago, Obama appointed Warren to set up the new federal agency charged with protecting consumers from abuses by banks, credit card companies and other financial firms. She also joined the White House economic team.

Both Summers and Warren evoke strong emotions among Democrats.

Summers is loathed by many progressives, who see him as tied to Wall Street interests. At the same time, the left praised the arrival of Warren, hailing the Harvard law professor as a champion of the middle class.

But nothing in the new lineup of advisors suggests Obama is abandoning the path out of the deep recession he has plotted over the past 20 months.

Two pivotal vacancies — budget director and chair of the Council of Economic Advisors — have been filled from within the administration. And although the White House has said Obama might tap a corporate executive to replace Summers, the team’s most senior member will continue to be Treasury Secretary Timothy F. Geithner, a chief architect of the administration’s economic policy.

Some economists said that strategy was a mistake given the slowing pace of economic growth and continued deep problems in the housing market. The nonpartisan Congressional Budget Office forecasts a modest 2.1% increase in real economic output next year, far too weak to make much of a dent in 9.6% national jobless rate.

“There’s a distinction between shaking up the team and making shifts in policy,” said Robert Shapiro, an economic official in the Clinton administration.

“The question is how much confidence do they have that, without additional measures, the economy will strengthen on its own,” he said. “I think Larry had confidence in that six months ago … but no one has as much confidence in it today.”

While Obama has one eye on the midterms, he is also focused on his reelection in 2012. The president and his economic team have been adamant that the economy is on the right track and that their policies simply need more time to reverse the effects of the deepest recession since the Great Depression.

“We’re moving in the right direction,” Obama said this week during a town hall meeting about the economy.

Obama plays to his base with financial team moves

Mexican marines captured Sergio Villarreal Barragan, a presumed leader of the embattled Beltran Leyva cartel who appears on a list of the country’s most-wanted fugitives, in a raid Sunday in the central state of Puebla, the government said.

The alleged capo known as “El Grande” did not put up any resistance when he was arrested along with two accomplices, a navy official who spoke on condition of anonymity in line with department policy told The Associated Press. The President’s Office later issued a brief statement confirming the arrest took place in Puebla, capital of the state of the same name.

Villarreal’s capture is the fourth major blow delivered to drug cartels by Mexico’s government in the past year. First came the death of Arturo Beltran Leyva on Dec. 16, 2009. Then soldiers killed the Sinaloa cartel’s No. 3 capo, Ignacio “Nacho” Coronel, on July 29. And on Aug. 30 federal police announced the capture Edgar Valdez Villarreal, alias “La Barbie.” The two men are not related.

Villarreal, “El Grande,” appears on a 2009 Attorney General’s Office list of Mexico’s most-wanted drug traffickers, with a reward of just over $2 million offered for his capture.

He is listed as one of the remaining leaders of the Beltran Leyva cartel, whose top capo, Arturo Beltran Leyva, was killed in a raid by marines outside Mexico City.

Villarreal’s capture comes about two weeks after the arrest of Valdez Villarreal, another alleged capo linked to the Beltran Leyvas.

The once-powerful Beltran Leyva cartel split following the death of Arturo — known as the “Boss of Bosses” — which launched a brutal war for control of the gang, involving mass executions and beheadings in once-peaceful parts of central Mexico. The fight pitted brother Hector Beltran Leyva and Villarreal against a faction led by “La Barbie.” Hector Beltran Leyva remains at large.

The Beltran Leyva brothers once formed a part of the Sinaloa cartel, but broke away following a dispute. An indication of the problems facing the cartel is that three of the four main blows dealt to drug gangs in the past year involve Beltran Leyva leaders or operatives.

More than 28,000 people have been killed in Mexico since December 2006, when President Felipe Calderon launched a military offensive against the cartels soon after taking office.

In the central state of Morelos, police discovered nine bodies in clandestine graves Saturday in the same area where four more were recently found. The Public Safety Department said in a statement that all 13 victims were believed to have been killed on the orders of “La Barbie” in his battle for control of the cartel.

On Sunday, the military announced that it filed charges against four troops for the Sept. 5 shooting deaths of a man and his 15-year-old son along the highway linking the northern city of Monterrey to Laredo, Texas.

Authorities have said soldiers opened fire on the family vehicle when it failed to stop at a checkpoint, though relatives who were also in the car say they were shot at after they passed a military convoy.

The mother and wife of the two victims was also wounded in the shooting.

A captain, a corporal and two infantrymen are in custody in military prison and have been charged with homicide, the Defense Department said in a statement.

Mexico’s military was already under scrutiny for this year’s killings of two brothers, ages 5 and 9, on a highway in Tamaulipas, a state bordering Nuevo Leon.

The National Human Rights Commission has accused soldiers of shooting the children and altering the scene to try to pin the deaths on drug cartel gunmen.

The army denies the allegations and says the boys were killed in the crossfire of a shootout between soldiers and suspected traffickers.

The scandal renewed demands from activists that civilian authorities, not the army, investigate human rights cases involving the military.

More recently, soldiers killed a U.S. citizen Aug. 22 outside the Pacific coast resort city of Acapulco.

In a statement to police, an army lieutenant claimed that Joseph Proctor, who had lived Mexico for several years, shot first at the military convoy on a highway between Acapulco and Zihuatanejo.

The Defense Department says it is investigating the claim, which Proctor’s father, William Proctor, says he found hard to believe.
Mexico catches a suspected leader of Beltran Leyva drug cartel

Richard J. Bing of La Ca

As employers struggle with rising healthcare costs and a sour economy, U.S. workers for the first time in at least a decade are being asked to shoulder the entire increase in the cost of health benefits on their own.

The average worker with a family plan was hit with 14% premium increase this year, pushing the bill to nearly $4,000 a year, according to a survey by the nonprofit Henry J. Kaiser Family Foundation and the Health Research and Educational Trust.

That is the largest annual increase since the survey began in 1999 and a marked change from previous years, when employers generally split the rise in the cost of premiums with their employees.

The average employer contribution to a family plan did not go up at all this year, meaning the entire increase was borne by workers.

At the same time, nearly a third of employers reported that they either reduced the scope of benefits they are offering this year or increased the amount that workers must pay out of pocket for their medical care.

Workers saw average copayments for routine office visits increase 10% and deductibles continue their surge upward.

In 2010, more than a quarter of American workers with employer-provided health coverage were in plans with deductibles of at least $1,000.

“It’s really bad news for everybody,” said Helen Darling, president of the National Business Group on Health, an organization of large employers that provide coverage to about 50 million workers, retirees and dependents.

Overall, premium growth slowed slightly this year to 3%, with the average annual cost of a family health plan reaching $13,770. Workers picked up 30% of that bill. The average plan for an individual cost $5,049.

The squeeze, reported by employers between January and May, largely reflects the fallout of the ongoing economic slowdown and may be ameliorated in future years as the new healthcare law is implemented.

But it could further complicate the Obama administration’s efforts to rally support for the law, which is expected to do relatively little in the short term to contain rising medical bills.

“There have been times when employers have been able to absorb costs. This is not one of those times,” said James Gelfand, health policy director at the U.S. Chamber of Commerce, a leading critic of the new law.

The law, which focused on expanding coverage for Americans who don’t get insurance through work, was designed to largely preserve the existing employer-based healthcare system.

Independent analyses of the law estimate that most Americans will continue to get insurance through their employer, as about 157 million do now.

Administration officials Thursday pointed to two new studies from the Rand Corp. and the Commonwealth Fund that predicted small businesses in particular would probably expand coverage in coming years, in part with help from billions of dollars of in new tax credits.

“We have really just begun our efforts,” said Nancy-Ann DeParle, director of the White House Office of Health Reform, emphasizing the growing number of tools government regulators have to control insurance premiums.

The Kaiser survey found that the percentage of firms offering health benefits rose to 69% from 60% this year, an unexpected increase that analysts speculate may reflect the failure of many businesses that didn’t offer benefits.

But the survey suggests that the coverage workers are being offered is becoming increasingly unattractive as employers try to control their costs in the down economy.

“We were all so focused on the reform debate that I think we took our eyes off the fact that what we call heath insurance in this country is changing,” said Kaiser foundation President Drew Altman. “What workers get looks less and less like the comprehensive coverage their parents had.”

U.S. employers push increase in cost of healthcare onto workers

The Commerce Department on Friday downgraded the nation’s economic growth in the second quarter, providing the most important evidence yet that the recovery has stalled.

The anemic annualized growth rate of 1.6% was down from last month’s estimate of 2.4%. The drop was slightly less than many economists had predicted, but the report still put an exclamation point on a week of bad economic news that has raised fears the nation could plunge into another recession.

Responding to those concerns, Federal Reserve Chairman Ben S. Bernanke said Friday that the central bank was prepared to step in if necessary to help provide additional stimulus to the economy and avoid the type of debilitating deflation that struck Japan in the 1990s.

He outlined three possible options, including expanding its purchases of long-term securities to pump more money into the economy and signaling that the central bank will keep its short-term interest rate near zero for longer than the vague “extended period” it has promised.

“The Federal Reserve is already supporting the economic recovery by maintaining an extraordinarily accommodative monetary policy, using multiple tools,” Bernanke told a major economic gathering in Jackson Hole, Wyo., according to a copy of his remarks released by the Fed.

“Should further action prove necessary, policy options are available to provide additional stimulus. Any deployment of these options requires a careful comparison of benefit and cost.”

In his highly anticipated comments, Bernanke added that despite the “recent slowing” in economic growth, “it is reasonable to expect some pickup in growth in 2011 and in subsequent years.” But the high unemployment – at 9.5% in July – is expected to “decline only slowly,” he said.

“The prospect of high unemployment for a long period of time remains a central concern of policy,” Bernanke said.

The Commerce Department’s Bureau of Economic Analysis said Friday’s downward revision was based on more complete data and “primarily reflected a sharp acceleration in imports and a sharp deceleration in private inventory investment” by businesses. Those drops were partially offset by an increase in residential and nonresidential investment, as well as increases in federal, state and local government spending.

Federal stimulus and other spending was a big boost from April through June, with expenditures and investment up 9.1% in the second quarter, compared with an increase of 1.8% in the first quarter of the year, the report said. But the nonpartisan Congressional Budget Office reported this week that the effect of last year’s $814-billion stimulus legislation would gradually diminish in the second half of the year.

The widening trade deficit was a major drag on the recovery in the second quarter. Real exports of goods and services increased 9.1% in the second quarter, compared with an 11.4% increase in the first quarter. Imports soared 32.4% in the second quarter after rising 11.2% in the first.

The government routinely revises its reports on domestic economic output, also known as Gross Domestic Product.

Friday’s revision comes after an advance estimate of second-quarter GDP that was released July 30. The average revision is about 0.5%.

Economists had projected second-quarter GDP could fall to 1.3% or lower. Still, Friday’s report was discouraging because growth below 2% reflects a very weak recovery. The economy had grown at a 3.7% rate in the first quarter and 5% in the final three months of last year.

The downward revision follows horrible housing reports that hit Tuesday.

Thursday brought some more potentially discouraging news on home foreclosures and unemployment. Investors demonstrated their concern, dropping the blue-chip Dow Jones industrial average 74 points to close below 10,000 Thursday for the first time since early July.

The Dow was up slight in early trading Friday. Consumer sentiment in August remained largely unchanged, according to survey results released Friday by Thompson Reuters and the University of Michigan. Only one in four households expected their finances to improve in the year ahead, the survey found.

The downward revision of second-quarter economic activity came as other forecasts projected slow growth.

Last month, Federal Reserve Chairman Ben S. Bernanke declared that the economic outlook was “unusually uncertain.” Concerned about the pace of recovery, the Fed this month decided to start buying U.S. Treasury bonds again to keep down longer-term interest rates.

The central bank this year had begun pulling back its extraordinary support for the financial system, but jumped back into the bond market this month because Fed policymakers said the recovery “appeared more modest in the near term than had been anticipated.”

Bernanke is set to address the economic situation later Friday morning in a speech at the Fed’s annual Economic Policy Symposium in Jackson Hole, Wyo., a high-level gathering of central bankers, finance ministers, academics and industry executives from around the world. It will be his first public comments since the Fed announced its plan to resume purchases of Treasury bonds.

But with the Fed’s benchmark short-term interest rate near zero, its policy options are limited. The Fed’s most recent economic forecast, in late June, called for economic growth of 3% to 3.5% this year, slower than the 4% growth in the last half of 2009.

Bernanke said Friday that the central bank could decide to expand its purchases of long-term securities, signaling low interest rates will last much longer, or lower the interest rate the Fed pays to commercial banks for their reserves, which would encourage them to lend the money.

He said there was not a significant risk of the economy “falling into deflation” – a harmful cycle of lower prices that damages growth. But he said the Fed was prepared to act in such a case to “strongly resist deviations from price stability in the downward direction.”

jim.puzzanghera@latimes.com
Downward revision of GDP growth a strong signal of stalled recovery

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