If ValleyVOTE calculations are on the mark, that $68 million a potential Valley city would owe Los Angeles in annual “alimony” payments might be a little high maybe $46 million too high. According to Charles Brink, a member of the ValleyVOTE executive board and an accountant with Sandra Eve Kardos, CPA in Van Nuys, budgeted expenditures listed in the city’s feasibility study do not include the Valley’s portion of the costs of running L.A.’s Information Technology Agency or its Bond Redemption and Interest department. ValleyVOTE representatives say the annual alimony payment money Los Angeles says it would lose if the Valley broke away should actually be closer to $23 million, not the $68 million originally reported. The study, based on city data and prepared by the Los Angeles Local Agency Formation Commission (LAFCO), includes a breakdown of the city’s budgeted expenditures for fiscal year 2000-01 and what the Valley’s percentage of those expenditures is. The report concludes the Valley could secede and remain financially solid music to secessionists’ ears. It also says the Valley will generate $1.04 billion in revenue for Los Angeles for FY2000-01 and that the city would have to spend $976.5 million to deliver services to the Valley, leaving a gap of roughly $68 million. That, secessionists say, proves what they have said all along: that the Valley pays for more than it gets. In most cases, the city study puts the Valley’s average percentage of allocated expenses at between 24 percent and 26 percent. But digging deeper into the report, for the categories of IT and Bond Redemption, the percentages of Valley participation are listed as a big fat zero. Brink said he’s calculated what those missing figures should be based on the city’s average of about 24.9 percent, and concluded that the Valley’s share of total expenditures for FY2000-01 are about $46 million higher than the report states. For example, the city’s total budget for the Bond R & I; is $64.15 million. But a new Valley city would continue to be responsible for its share of any bonds outstanding at the breakup, said Brink, and probably be paid for by property taxes. Using the 24.9-percent figure, the Valley’s annual share of Bond R & I; expenditures are about $15 million. Add that to the Valley’s share of expenses for the Information Technology Agency and he says missing expenditures total $45.7 million. Then add that to the city’s figure for total Valley expenditures and subtract it from Valley-related revenues, and the alimony payment drops to roughly $22.6 million. “Essentially, what they did was leave out expenses for services we’ve already been paying into and, as a result, the Valley’s alimony should be lower than what they came up with,” said Brink. William Powers, a Chatsworth attorney and also a member of ValleyVOTE’s executive board, said, “In the LAFCO study, they said that we owed $68 million for alimony and they did that by saying that our expenses were ‘x’ and subtracted those from ‘y,’ but if you bump our expenses up another $45 million, our alimony is netted at $22,638,461.” LAFCO Executive Officer Larry J. Calemine said he couldn’t comment on Brink’s findings. “Those are numbers that LAFCO didn’t come up with, they came from the city, so how can I say anything about them at this point?” Calemine asked. Ron Deaton, the city’s chief analyst in charge of computing the initial figures for the study, did not return several calls for comment. Bob Scott, past president and member of the Los Angeles Area Planning Commission and vice chairman of the Valley Industry and Commerce Association, said, if the city has miscalculated, it comes as no surprise, considering the magnitude of the study. “I fully expected that we would find mathematical errors in the report. It’s normal,” Scott said. “But it’s just a draft report and they will re-crunch the numbers.” Scott added that it is likely ValleyVOTE’s consultants will find more miscalculations and that this “is probably the tip of the iceberg.” He said he couldn’t account for why the IT and Bond department allocations for the Valley were omitted. “I don’t know if it’s an error or as a matter of policy the way they decided to allocate the money,” Scott said. “But I think we will see a lot more of those gaps and adjustments.” Brink said he thinks IT expenditures for the Valley were omitted because consultants preparing the report assumed the new Valley city would contract with L.A. for those services. But by omitting a Valley share of the expenses, they are essentially saying those services would no longer be available in a post-secession world. “They made the conclusion that the IT department would no longer be servicing the Valley, so there were no expenses for those categories factored in,” said Brink. But should a secession initiative be approved by the voters in 2002 the new Valley city would likely have to contract for those services and others. The Valley could ultimately opt to implement its own services once a local government is in place. In the meantime, however, the Valley would still have to pay for those services and ought to be credited for it. “When the new city council is in place, they could say we would start our own services,” said Brink. “But in the LAFCO study we would get no credit back for the IT services we’ve used or would use in the interim.” Powers said the 24.9-percent average used by the city doesn’t reflect proportional population in all cases. If it did, he said, the average Valley portion of expenditures should be closer to 34 percent, which would lower the city’s requested alimony payment even further. “The report uses the percentages that these folks sort of pulled out of their hat in allocating costs to the Valley,” said Powers. “And they did it so that our alimony would be higher.” ValleyVOTE and its consultants have until May 14 to submit their final proposal.

Latin Culture Plays Role in Mall Design Workers haven’t even finished construction at Plaza del Valle, but already the repainting has begun. One color, a mustard yellow, is off, and crews have been dispatched to fix it. With one shopping center looking pretty much the same as the next, you might wonder what the big deal is over a shade of yellow. But getting the color exactly right is at the heart of this Panorama City redevelopment project. Plaza del Valle, a 190,000-square-foot shopping center set to open in December at Van Nuys Boulevard and Chase Street, is at the cutting edge of a new trend in regional shopping centers. Rather than just a place to shop, developers want these centers to become part of everyday life. While tenants remain important, they are taking a back seat to the center’s design as the key to success. “You don’t want (shoppers) to think, ‘This is where I go to buy my underwear,'” said Douglas Sutter, creative director at House of Immaculate Creation, which, along with Tapis Design, is designing the center. “We obviously want people to come and spend their money, but the most successful malls, people don’t go there for the shopping experience.” While traditional shopping centers drew customers with big-name retail stores, new malls are attracting shoppers by offering a neighborhood. As such, the right shade of yellow can make a world of difference. “These kinds of colors dominate people’s lives,” said Sutter. “Coke doesn’t use that red because they like it. It’s a very specific color that evokes an emotion.” Plaza del Valle will feature about 200 small mom-and-pop retail stores, laid out much like the outdoor markets found throughout Central and South America. About 25,000 square feet of the center will be devoted to services a doctor’s office, dental practice, accountant and a beauty school, along with some social service offices. Carey Lefton, president of Agora Realty and Management, the property managers, and a partner with Socially Responsible Investing LLC, the project developers, said he hopes the center will develop a reputation as the place to go for discount clothing and accessories, a San Fernando Valley version of Santee Alley in downtown L.A. But to do that, Plaza del Valle needs an identity that will appeal to the shoppers the developer hopes to attract. “Knowing we’re going to have small mom-and-pop type tenants who don’t have the wherewithal to market themselves, the idea is to brand the center with a look that will promote itself,” Lefton said. That idea is adding about 20 percent to the cost of designing the center. All tolled, Plaza del Valle is expected to cost about $22 million, Lefton said. Almost since shopping malls were invented, they were designed to be worlds of their own. Sealed off from neighborhoods and housing national chain stores that could be found in almost any city, they shut out crime, and change and diversity in favor of safety, predictability and homogeneity. But middle America has largely disappeared, as the most recent census data, indicating an ethnic hodgepodge across the country, is beginning to show. And instead of chasing common denominators, developers are now zeroing in on the narrowly-defined audiences more likely to make up their market. “Ozzie and Harriet are no longer the dominant shoppers,” said Michael Beyard, senior resident fellow at the Urban Land Institute, a Washington, D.C.-based research and education organization that seeks to improve the quality of land use and development. “The era of the standardized mall with the same design, the same stores, the same giant parking lot is not a response to the new consumer.” New-wave shopping centers have been rolling out slowly throughout Los Angeles for several years. Think Third Street Promenade in Santa Monica, Old Town Pasadena or even The Commons at Calabasas. But these earlier versions, while different in their designs, target an upscale, mostly white shopper. Plaza del Valle, in a mostly Latino community, has a decidedly ethnic twist. Lefton himself has made several trips to Mexican cities like San Miguel de Allende, Guanajuato and Puerto Vallarta to shop for fountains, benches, doors and other accessories that will give Plaza del Valle its Latino flavor. But the developer and designers soon learned that the center could not simply depend for its appeal on imported Mexican culture. For one thing, many of the shoppers Plaza del Valle hopes to attract are from other areas of Central or South America, each with its own distinctive style. And any wholesale adaptation of the look of a Latin American shopping center threatened to make the center “tourist-y.” “We talked to about 280 people,” said Sutter, whose House of Immaculate Creation has designed identity programs for films such as “The Matrix” and the upcoming “Swordfish” with John Travolta. “People didn’t want to be transplanted home. They go home enough.” What shoppers said they wanted was a place that reflected their own lives and lifestyles, one where they could bring their families. The designers began their task by drawing on collections of photos, images and motifs from Latin America and then adapting them for the American market. “We wanted to give them the ‘Old World’ without becoming cliched,” said Dean Warren, co-owner of Tapis, a residential interior design firm. Large-scale tiled walkways that connect the shops along Plaza del Valle will be decorated with lizards, birds of paradise, mountains and sun and moon motifs drawn in a stylized, whimsical manner. “We hope it looks like it was painted on by an artist,” said Lary Borkin, Tapis’s other co-owner. The designers are also working on banners that can be displayed at each retail shop to promote the name of the center and the individual store.

When H.R. Pufnstuf hit the airwaves in 1968, puppeteers Sid and Marty Krofft knew they were on to something. “We put everything we had into it and it paid off,” said Marty, of the Saturday morning show featuring a six-foot dragon and teen-age English actor Jack Wild. Although there were only 17 episodes, the half-hour live-action show was an instant hit with youngsters that catapulted the Krofft brothers to Hollywood glory with a long string of children’s shows in the ’60s, ’70s and ’80s. Today, the brothers who declined to divulge their ages and their Sherman Oaks-based production company are on the comeback trail. They’re planning a remake of their ’70s-era show “The Bugaloos;” a film, now in development, of their “Land of the Lost” show; and a television pilot of “Electra Woman and Dyna Girl” for the WB Network. The Kroffts say they hope to ride the current wave of nostalgia for 1970s television with updated versions of their old shows. “I guess we did something right. You can’t kill these shows with a baseball bat,” said Marty who, along with his brother Sid, is producing “Electra Woman,” based on their 1976 ABC show by the same name. Sid, who handles the creative chores while Marty takes care of the finances, says the time is right to bring back the old shows. “The ’70s have become so popular, I guess our timing couldn’t be more perfect,” Sid said. But times have changed and production costs have gone through the roof, the brothers say, as they prepare to shoot their new pilot. “We did Pufnstuf for $54,000 an episode. Now an 18-minute pilot costs $1.5 million,” Sid said. “It’s crazy.” Jersey Films and Universal Studios have acquired the feature film rights to “The Bugaloos” with Kerry Brown and Russell Scott writing the screenplay. “We are quite excited to be in business with the Kroffts. They have created work that influenced an entire generation of people that are working in film and television today,” said Stacy Sher, a producer with Jersey Films. The Bugaloos, which originally aired from 1970 to 1972, is about four teen-age insects who form a rock group and often run afoul of local nasty Benita Bizarre, then played by Martha Raye. The Kroffts, in recent years, have continued to create puppet shows for theme parks around the country and for music videos. They also created a collection of giant puppets for ‘N Sync’s 2000 U.S. tour. More than 60 years ago, their father Peter Krofft, a master puppeteer in his own right, recruited his two young sons for a traveling puppet show. As the brothers grew up, they continued the family tradition by presenting puppet shows throughout the country. “We knew all the theater tricks. People used to say, ‘You gotta go see the Krofft show. They always get a standing ovation!'” Sid said. “But that’s because at the end we’d always have the American flag dropping with a lot of balloons and people would stand up and cheer. We did the same thing for ‘Donny and Marie.'” Eventually, Hanna-Barbera Productions asked them to work on the Banana Splits (humans dressed as an all-animal rock group that hosted a live action TV show in 1967). But even after the Splits became history, the Kroffts came up with the notion for H.R. Pufnstuf, featuring 16-year-old Wild as a boy who is shipwrecked on a magical island of witches, dragons and talking houses. The show, featuring high-end effects and expensive sets, was an instant hit, dominating the Saturday morning ratings in 1968 and 1969. “The Beatles were crazy about Pufnstuf,” Marty said. “Their manager, Brian Epstein, called us and said they wanted us to send them a copy as soon as we were finished so the Beatles could watch it.” But the end of “Pufnstuf” was not pleasant. “We lost our shirt,” Marty said. “We didn’t know what we were doing, so we were spending a ton of money when we shouldn’t have.” In 1970, the Kroffts followed up with “Lidsville” and “The Bugaloos,” and a slew of other programs. Never happy to stay on the sidelines, the brothers continued to operate the puppets themselves, often on their hands and knees below camera range. “We never got into those costumes though. They’re torture chambers under those hot lights,” Sid said. The Kroffts ventured into prime time with “The Donny and Marie Show” in 1976, “The Barbara Mandrell & the Mandrell Sisters Show” in 1982 and 1988’s political satire, “D.C. Follies.” Mike Clements, vice president of production for the WB’s Michigan J. Productions, said the Kroffts are well respected for their imagination and work in children’s television. Melanie Krinsky, the brothers’ banker for the past 10 years, said she feels their honesty and business acumen is at the root of their success. “They’ve taken out many loans with us and they’ve always repaid them on time, but most important is that they’re extremely honest. They know how to run a business,” said, Krinsky, executive vice president for Mercantile National Bank in Century City. Meanwhile, Sid Krofft says he’s pleased with their shows’ popularity more than 20 years after their heyday. “Pufnstuf was a unique show and it held up. It says to me that people just want to be entertained,” he said.

Title Insurance Companies

Call it a blood feud. A Sherman Oaks blood supplier is suing the American Red Cross, charging the organization with unfair business practices. In a lawsuit filed in U.S. District Court in Los Angeles, Hemacare Corp. claims the Red Cross competes unfairly, charging prices for its blood supplies that are below cost, obtaining exclusive contracts that prevent hospitals from seeking blood supplies at better prices and “bundling” the prices of its different products so that hospitals must purchase all of their blood from the Red Cross in order to get the best price. The Red Cross has responded to the complaint, calling the allegations without merit and claiming that many of the charges in the lawsuit are factually incorrect. “Our mission is to provide blood and save lives,” said Marc Jackson, a spokesman for the American Red Cross. “It is not to pay a healthy dividend to our shareholders.” Hemacare, believed to be the only publicly held company of its kind in the U.S., says, the revered image of the Red Cross as a do-gooder notwithstanding, blood is a business and the Red Cross constitutes an unfair monopoly that restrains trade. The company sued the Red Cross in 1995 for bundling its blood pricing in California and, while the agency admitted no wrongdoing, it did make certain changes in its blood delivery procedures. Hemacare, which is now accusing the Red Cross of bundling its blood products in some parts of the country, contends the not-for-profit company operates under the same guidelines as any for-profit business and should be held to the same business standards. The Red Cross generated $1.5 billion in revenues from its biomedical services groups nationally in the fiscal year ended June 30, 2000. “In the U.S., the way we have organized the business, 99 percent of the blood supply comes from 100 (mostly Red Cross) blood centers and the way they finance their activity is by selling blood to the hospital,” said Alan Darlington, chairman of Hemacare. Founded in 1978, Hemacare took advantage of technological advances that made it possible to draw platelets separately from red blood cells. Previously, blood suppliers would collect a pint of blood and then separate it into red blood, plasma and platelets. But the old process meant that about six donors were needed to get just one unit of platelets, which are used for major surgeries and cancer therapies to aid in blood clotting. Because the new technology meant a unit of platelets could be drawn from a single donor instead of six, it has reduced the risk of disease from transfusion, making so-called single donor platelets the preferred choice of many hospitals and physicians. The collection process for single donor platelets is more time-consuming and labor-intensive, and the cost of entry, along with stringent government requirements, has acted as a deterrent for most of the private sector. At the same time, single donor platelets have become the medical version of a high-end product with greater profit potential than higher volume red blood cell services, persuading Hemacare to move into the field. “Platelets have been priced at a premium; we’re entrepreneurs and we saw an opportunity,” Darlington said. Since it opened, Hemacare has grown to a $20 million company. Publicly traded over the counter since 1986, in the most recent fiscal year ended Dec. 31, 2000, the company reported net income of $1.36 million or 16 cents per share, up 29 percent from $1.05 million in 1999. Hemacare executives say that because they are smaller and they don’t have a large centralized bureaucracy like the Red Cross, they can manage the collection and distribution of blood more cost-effectively and save hospitals money on platelets. Despite those advantages, their growth has been stymied because of the way the Red Cross prices its products and conducts its business. “We keep going into hospitals and saying, ‘Here’s a program that will save you $500,000 a year, and they look at us and say, ‘That’s great, but if we use you, it will cost us more,'” said Darlington. Hemacare claims that, in some markets, the Red Cross charges prices below its cost for single donor platelets. The company also claims that the Red Cross bundles its blood products so that hospitals must buy all their blood from the Red Cross in order to get the most advantageous pricing. And it charges that the Red Cross requires hospitals to sign exclusive contracts in order to receive the lowest prices on its red blood cells. Since Hemacare is too small to service all of a hospital’s blood needs, the executives charge, hospitals often have to settle for paying higher prices on platelets than those charged by Hemacare. “The reality is when you approach a hospital you can predict the blood utilization with a big degree of accuracy,” said Darlington. “And when the Red Cross cuts a volume deal, they’re precluding anybody else from offering the hospital a deal that would save them any money at all.” Not so, say Red Cross executives. The agency says its platelets are priced well above its cost. And although it has under-priced its red blood, Red Cross executives say they have been increasing red blood cell prices and will continue to do so. “We have historically erroneously under-priced our red cells,” said Dr. Peter Page, Southern California Region executive director for the American Red Cross Blood Services. “In recent years, we have increased our pricing to approach recovering our costs. They (Hemacare) don’t have a responsibility to the community to provide ongoing red cells, which is the real challenge because it’s red cells the country has been short of.” Red Cross officials claim their pricing policies are dictated by their costs, and it is more cost-effective to deliver blood of all types in larger volumes. “Our costs per unit are less when we provide more products to the same delivery address,” said Page. “The more they buy from us, the cheaper it is, and it doesn’t matter whether they buy from someone else or not.” The agency says it follows a separate four-tiered pricing structure for red blood and for platelets. “So if a hospital buys both, that doesn’t make any difference,” Page said. “The red cell price is the red cell price depending on how many they buy. The platelet price is the platelet price depending on how many they buy.” Page also points out that in numerous audits, there has been no evidence that the agency is bundling its products. The Red Cross enters into contracts with its hospital clients in order to ensure that it will have sufficient blood supply for their needs, said Page. But if a hospital wanted to buy additional blood from any other source, it is free to do so. “Our primary commitment is to those who have developed an expectation to rely on us,” said page. “The hospitals we have contracts with may also get blood from other sources, and that’s just fine.”

Everyday someone else in the national media asks the question, “How bad will it get before it gets better?” It’s probably time to ask the same thing of the local real estate market. Until now, office real estate activity in the San Fernando Valley has kept a steady pace, even as news of chinks in the economic armor of other sectors circled the region. And, except for a few, albeit high-profile, blips on the real estate radar screen from companies that vacated space or backed out of lease deals, vacancy and absorption rates held fast to positive territory. But in the first quarter of 2001, net absorption moved into negative territory in nearly every Valley submarket, a clear sign that the slowdown has begun. To be sure, there are tenants who continue to need, and shop for, office space. But the most recent figures suggest their numbers are declining, while the stock of space being vacated is on the rise. “What the numbers show is that, with the uncertainty of the economy, everyone just plain slowed down,” said Tom Festa, a broker with Grubb & Ellis. “The question is how deep a downturn are we going to go through.” For the Valley, excluding Burbank and Glendale, office market net absorption was a negative 251,417 square feet, meaning 251,417 more square feet of space was vacated than was leased in the first quarter, according to data compiled by Grubb & Ellis. In Burbank, net absorption registered a negative 49,417 square feet, and Glendale recorded a negative absorption of 139,140 square feet. Vacancy rates dropped as well. Throughout the region, again excluding Burbank and Glendale, office vacancies in the first quarter of the year dropped to 12.1 percent, from 10.1 percent in the fourth quarter of 2000 and 10.7 percent for the first quarter a year ago, the Grubb & Ellis data revealed. In Burbank, vacancies rose nearly four percentage points to 7.7 percent, from 3.9 percent in the fourth quarter of 2000 and 5.8 percent from the first quarter of 2000. Glendale vacancy rates bumped up nearly two percentage points to 13.9 percent from 11.7 percent in the fourth quarter of 2000. Current vacancies there, however, remained well under the rates of a year ago, when vacancies reached 16.2 percent. Besides Burbank, the hardest hit areas in the first quarter of the year were the East Valley, where vacancies rose 7 percent to 15.1 percent, from 8.4 percent in the fourth quarter of 2000, and the Conejo Valley, where vacancies rose by 4 percentage points to 13.7 percent from 9.7 percent in the final quarter of last year. The West Valley held up best of any of the area’s submarkets, seeing vacancies inch up to 10.3 percent in the first quarter of the year, from 9.6 percent in the final quarter of 2000. Although absorption in the West Valley also moved into negative territory 89,248 more square feet of space was vacated than was leased brokers believe the shortfall provides no cause for alarm. Significant portions of new construction in the West Valley, such as LNR Warner Center, have leased up, indicating demand is keeping up with the new supply. Suggesting that no one is ready to panic yet, rents remained relatively steady in the first quarter of the year as well at an average of $2.30 a square foot for Class A office space, excluding Burbank and Glendale. Burbank asking rents dipped to $2.62 per square foot for Class A office space, from $2.77 in the fourth quarter of last year, a likely result of the stock of sublease vacancies that has come into that market. Glendale’s asking Class A office rent averaged $2.41, an increase over the fourth quarter of 2000 when average rents for Class A space were $2.29. Valencia Sales Three deals have closed in the Valencia Commerce Center. PMRealty Advisors acquired three industrial buildings totaling 324,945 square feet for $20 million. The buildings at Valencia Commerceplex I and II are designed for warehouse and distribution uses. Kimball Microelectronics Group, makers of electronic circuit boards and components, has acquired a 40,000-square-foot building at 28575 Livingston Ave. The purchase price was $5 million. AlleCure Corp., a biotech company, has acquired 5.3 acres of land and a 98,000-square-foot building at 28903 Avenue Paine in the center. The purchase price was not disclosed. Craig Peters, Doug Sonderegger, Barbara Emmons and Greg Barsamian of CB Richard Ellis, Inc. represented the seller in the PMRealty and AlleCure transactions. They also represented the buyer in the PMRealty transaction. Peters and Sonderegger were also the brokers for buyer and seller, Intertex Holding Co., in the Kimball transaction. Independent broker Robert Stratton represented AlleCure in that deal. Living Out Loud in Chatsworth M & K; Sound Corp. makers of loudspeakers for high-performance venues like movie theaters and residential use, has leased a 55,563-square-foot facility in Chatsworth. The company is doubling its space in the move from its previous headquarters in Culver City. M & K; will employ about 90 people at its new site at 9351 Deering Ave. in the Northpark Industrial Center. Scott Caswell, a broker with Delphi Business Properties, represented the tenant and the property owner, Gary Siegel. MetLife Moves Metropolitan Life Insurance Co. consolidated two offices at a new Westlake Village location. The company leased 6,500 square feet at Westlake Plaza Center III in a five-year lease valued in excess of $1 million, sources said. MetLife, which is moving its Oxnard and Thousand Oaks offices to the new locations, will relocate to 2815 Townsgate Road. Tom Festa, a broker with Grubb & Ellis, represented MetLife in the transaction. Tony Principe, a broker with Westcord Commercial Real Estate Services, represented the landlord, Plaza Center III LLC. Staff reporter Shelly Garcia can be reached at (818) 676-1750 ext. 14 or by e-mail at [email protected].

Virtualis Systems was the poster company for high-tech startups an Internet service provider and Web hosting company founded in a garage by a twentysomething engineering school dropout and staffed with eager computer geeks only too happy to burn the midnight oil in exchange for an easy-going environment with a direct link to decision-making. So when Allegiance Telecom Inc., a $285 million, publicly held telecommunications provider, acquired Virtualis late last year, the corporate culture changed virtually overnight. Virtualis’ 80-odd employees would no longer be marching into management to get instant decisions. Virtualis COO James Segil spoke to staff reporter Shelly Garcia about leading an entrepreneurial startup through the transition to a corporate division. “We had quite a roller coaster ride through our VC funding stage. So there was an overwhelming sense of relief when we knew we were being acquired. People were relieved to know they were going to have strong financial backing. They had worked very hard making a startup turn into a real business, and the acquisition has given validity to their hard work. So there was a sense of pride, and there was also a good deal of apprehension. A lot of people were scared of the bureaucracy and red tape. They were concerned about whether we would be able to operate as a standalone unit. “One of the things we said early on is everyone had to realize there was going to be a mind shift. Don’t fight it. Accept it and make it work for you. If you learn the system and the way things work and become part of it, you can make it work to your advantage. “(Another issue is) how do you motivate (employees) to continue to remain entrepreneurial and innovate within the context of a big company? I think one of the things we did is separate things into bite-size pieces. Someone says, ‘Our site can be much more effective at closing orders. I want to redesign the site.’ That’s a huge endeavor that’s going to need approval from everyone and their father. But instead, if you say, we can change the order page, I don’t have to worry about running that up the flagpole. “You have to tow the party line. And for good reason. If you don’t have confidence in your parent company and the management team there, then your people aren’t going to have confidence in you. It all ties together.”

What power crunch? That’s the response most East Valley-based business owners, or those who operate in Los Angeles Department of Water and Power territory, are likely to have when asked how they are faring in the state’s energy crisis. But put the same question to business owners, big and small, on the west and north ends of the Valley say in Valencia, Thousand Oaks, Calabasas or Agoura Hills and it’s a completely different ballgame. Welcome to Southern California Edison country, where the apron strings of mother DWP don’t quite reach. And the blackouts expected to roll repeatedly across the state this summer, now made all the more unsettling by the certainty of rate increases, are bound to give the expression “June gloom” a whole new meaning. “Those folks in the Valley on SCE, I feel sorry for them,” said Ronald Davis, general manager of the Burbank Public Service Department. “The utility really let them down.” Davis can say that, of course, because like Los Angeles where Department of Water and Power customers are thanking their lucky stars they live and work where they do, Burbank relies on its own power plants to generate electricity. As does Glendale. In fact, last month representatives from the two cities, along with those from Pasadena, huddled in a small conference room at the Glendale Hilton to discuss plans to actually share their power supplies and generate more income by selling off their surplus to the state. Meanwhile, businesses located west of the DWP boundary line are scrambling to come up with conservation measures, contingency plans in case of rolling blackouts and what could amount to as much as a 46-percent utility rate increase. Some already anticipate the fallout will, one way or another, trickle down to their customers. “The things that we are suffering today are because of decisions made five and 10 years ago (by the utility providers) and by their inability to take measures to supply us with abundant power,” said David York, vice president, operations, for Ram Enterprises Inc. in Valencia. “I don’t think SCE has done their job, and I think it’s a shame that that’s now being passed on to the consumers and there is no short-term answer for this other than conservation.” York said the 16-year-old company, which does about $17 million worth of business each year, invested in a generator a couple of years ago because summer blackouts are common in Valencia even under the best circumstances. “There is a tendency for the power to go out during the summer because of delivery issues and overuse,” he said. “So we will survive.” But, said York, in addition to the added, very costly expense of running on a back-up generator, there is the possibility the company, which distributes electronic connectors and accessories to the aerospace industry, could fail its customers. “Because we are national, I’m not sure what the compassion level will be with our customers when we say, ‘Oops, we can’t ship those products to you because we had a power outage,”‘ York said. “We are capable of sustaining our business, should a power outage occur, but as far as the rate increases, that’s something that trickles down and we will have to pass on to our customers.” Glen Becerra, SCE’s public affairs regional manager, confirmed blackouts are likely. “When the summer months do set in and we are engulfed with high temperatures, it looks like we could be facing rolling blackouts,” Becerra said. When temperatures hit the 80-degree mark, said Becerra, kilowatt-hour usage is at about 12,332 for the entire 50,000-square-mile area SCE provides service to. But when the thermometer soars into the 90s, as it so often does between the Fourth of July and Labor Day, kilowatt-hour usage can be closer to 50,000. Becerra said conservation is key and SCE has done its part, offering incentive programs for businesses that install energy-efficient lighting or heating and cooling systems, for example. He also said the expected blackouts, which will occur inside grid groups selected at random, aren’t likely to bring a company down since they rarely last longer than an hour. Businesses selected for blackouts will have warning, Becerra said, but not much. “The California Independent System Operator is responsible for managing the high voltage distribution system, or schedules the electricity,” Becerra said. “The cities know what groups they are in. But we may not get more than five or 10 minutes notice.” Here’s another kind of “notice” businesses may get that won’t bode well for the bottom line. Every bank, according to Michael Ward, CEO for Charter Pacific Bank in Agoura Hills, naturally scrutinizes the financial health of borrowers before approving their loan applications. And if a company is having to make extra expenditures to cope with rolling blackouts, incentive programs, conservation efforts and utility rate increases, even the largest generator in the world isn’t going to make it look better on paper. “Someone who has a major reliance on energy could be credit-worthy now, but their energy costs could make it hard for them to obtain a loan,” Ward said. “While the increasing cost of energy obviously has an impact, it’s not a major expense of ours. But it’s a scandalous increase and it certainly has an effect on the bottom line.” Ward said the bank is in good shape and prepared to handle blackouts. But when they hit, he said the bank has to shut its doors, lock the vault and force customers to an electronic walk-up window to complete a transaction. “It’s tough on business, but we are prepared.” Chris Thompson is president of Wexler Video Inc., a Burbank-based broadcast equipment and service provider to the TV and cable industry. He said although his company feels very fortunate not to have to grapple with rate increases and blackouts, it does have a conservation plan in place that includes cutting back on lighting use. “We feel so blessed to be in Burbank. They had the foresight to be ahead of the curve and they have done a fabulous job of being business savvy,” said Thompson. “But we are trying to conserve because we feel bad that other people are going through this, and unfortunately, a lot of our customers are in that boat.” Even the blessed behemoth that is DWP knows, although its energy surplus remains solid, it cannot sit idly by while its neighbors in the West Valley and across the state are being affected. The DWP recently approved the purchase of 141 microturbine power systems from Capstone Turbine Corp. in Chatsworth to help reduce the power draw on the state’s energy grid and make its own supply more efficient. “We have enough reserves but, to make enough energy available to the rest of the state, we are putting on new peaking units and adding almost a thousand megawatts to our system,” said Frank Salas, chief of staff for the DWP. “We are all part of the state and the region and what affects our neighbors also affects us.” Burbank’s Davis said, while there are no planned rate increases for consumers and the energy surplus remains strong, the city has been preparing nonetheless for expected fuel cost increases, which threaten to drive up the wholesale cost of electricity for everyone. “Are we immune? Absolutely not,” said Davis. Burbank doesn’t have $4 million to toss out for microturbines and most of its six generating units, particularly those now supplying emergency power to the rest of the state, are old and extremely expensive to run. In other words, while there might be plenty of reserves available to help SCE and Pacific Gas and Electric customers out this summer, it will come at a very high premium. “The problem with emergency power is it’s very expensive and limited,” said Davis. “I would bet that there may be a day this summer where no amount of money in the world is going to get you power.”

Dot-coms are dying at the rate of 12 a week. The Nasdaq is in free fall. You might expect events like these to empty out college classrooms that once housed e-commerce courses. Think again. Not only do students continue to enroll in these programs, colleges continue to add such courses to the curricula. Electronic commerce, offered only at two U.S. schools just two years ago, has become a standard part of the MBA curriculum at more than 50 colleges and universities. And this fall, Woodbury University in Burbank will begin offering an undergraduate major and an MBA emphasis in e-commerce. The private university with an enrollment of 1,400 has already begun to receive interest from current business students who want to switch to the new major. “My observation as a business person and an academician is the need for e-commerce (training) is as strong as ever,” said Richard King, dean of the school of business and management at Woodbury University. “When we talk about e-commerce we’re talking about the application of information technology to business, and that’s the way business is going.” Once synonymous with dot-coms, e-commerce, at least as viewed by many of the schools preaching the doctrine, has taken on a broader meaning the application of information technology to everything from decision-making to supply-chain management. While the revised definition has given legs to many of these programs, it has also set academics to work revamping programs to better reflect the realities of the marketplace. “The programs have evolved,” said Dan LeClair, director of knowledge services for the International Association for Management Education, an accrediting organization for college and university level programs in business administration and accounting. “One of the things that (early adapters) learned is it was only an introductory phase. So even now the programs introduced three years ago look different than they did when they were first introduced.” Three years ago only two colleges offered E-commerce courses, often geared to what, at the time, appeared to be a burgeoning future for sales and marketing conducted over the Internet. Schools wanted to reflect what many saw as a fundamental change in the way products would be sold and, with rags-to-riches stories of Internet entrepreneurs abounding, many saw e-commerce programs as a way to attract the best and brightest students. Since then, the number of schools offering e-commerce courses has grown considerably. About 15 of the International Association for Management Education’s member schools offer some e-commerce coursework at the undergraduate level; another 48 offer e-commerce classes in their MBA programs. Offerings range from a single e-commerce class to degree programs in e-business or business technology. Some schools even offer a sub-emphasis in subjects ranging from marketing information and technology to e-business consulting, information technology architecture and even dot-com entrepreneurship. The growth comes in spite of an increasing awareness that e-commerce, in its narrowest sense, seems to have gone the way of the buggy whip. “The whole business curriculum has to have certain underlying elements,” said Larry Penley, chair of the International Association for Management Education and dean of the College of Business at Arizona State University, of the training needed to manage a company in today’s environment. “Decision making, data base knowledge, organizational structures, performance measures and legal and ethical issues have all changed as a result of the digital economy. All students need to get that.” At Woodbury, which will offer about 30 hours of e-business courses, the curriculum will focus on how to use e-business within an organization rather than electronic commerce as the business itself. “We had the dot-com period and that was trying to treat e-commerce as an end in itself,” said King. “Most of us knew that wasn’t going to fly.” Woodbury is launching its new program with a $310,000 grant from the Fletcher Jones Foundation of Los Angeles, seed money that allows the university to get underway.

By most accounts, secessionists are praising the near-400-page report released last week that says the Valley, with its 1.4 million residents, could become a viable city in its own right. The study prepared by the Local Agency Formation Commission (LAFCO) also supports their claim that the Valley has long been treated like Los Angeles’ unwanted stepchild, forcing it to pay more for services than it actually uses. But already, there are indications that secessionists could face hurdles coming to an agreement on some of the meat and potatoes of the report that deal specifically with revenues and how services would be shared. And that’s vital. The applicants for secession have just 45 days to huddle with their consultants and draft a final divorce plan for LAFCO, which would later be used by to determine whether the issue should be put to the voters in 2002. For example, the report shows that the Valley will generate $1.04 billion for the city in fiscal year 2000-2001, but Los Angeles’ expenditures for services back to the Valley amount to only $976.5 million, leaving a gap of roughly $68 million. On its face, it looks like the Valley ought to get that money back, right? Wrong. The study asserts that, should the Valley become its own city, Los Angeles would lose that $68 million it now uses to pay for programs in other parts of Los Angeles. And, as required by state law, the Valley would have to pay Los Angeles that $68 million each year for a so-far undetermined amount of time in “alimony’ to make up for its loss, to keep the arrangement “revenue neutral.” That’s a drop in the bucket and a fair price to pay for freedom, says Richard Brain, president of Valley Vote, the organization that originally requested the study. “Number one, we are paying that money currently,” said Brain. “So, the logic behind that is that there are needs on the other side of the hill that our taxes pay for and, if we want independence and local control, it cannot jeopardize the city. Out of $1.1 billion, you are talking about $68 million, and the $978 million left over would stay here in the Valley and we would control how that was spent.” Not exactly, said William Powers, a Chatsworth attorney and member of Valley Vote’s executive board, who asked to comment only as a private citizen. He said the study presents only a snapshot of revenue and expenditures at a given point in time, and does not take into account the disparate allotment of services. “What the consultant did in my opinion was take a very superficial approach,” said Powers. “(The study) says that the Valley should, number one, continue to be short-changed and, number two, because it has, the embezzler has taken from the till over time and gotten used to a certain lifestyle, so the Valley must continue to subsidize that lifestyle.” The LAFCO study assumes the Valley would contract with Los Angeles for vital services involving infrastructure said to be too complicated to divide, such as the delivery of water and power, information management and 9-1-1 emergency communication services. Brain said his organization has no problem with that because, with the separation, the Valley would no longer be held hostage by Los Angeles and what it thinks the Valley’s needs for those services ought to be. “We have never been opposed to contracting for services,” said Brain. “We would have a Valley city council that would contract with the city of L.A., but we would determine the level of services we want from them.” “And, maybe we would decide we would spend more money to keep our parks safer, or put more police on the streets,” said Brain. “So with that $976 million we would adjust our priorities and, secondly, we could create a more vibrant business environment so that we bring more quality jobs back into the Valley and increase our tax base and thus raise more revenue.” But according to Powers, secession applicants should be looking for ways to recoup what the Valley has contributed for those services over the last century, instead of cutting their losses in the name of independence. “The Valley has been paying into those infrastructures on a citywide basis for 100 years,” he said. “The idea of the DWP charging us and (considering the Valley) just a customer, is unfair. “We don’t have an equity interest in the DWP? I think Los Angeles owes the Valley.” There is another concern linked to the idea of contracting services to the Valley. According to Brain, it is still not clear whether LAFCO has the authority to approve or reject such contracts, either before or after incorporation. That opens up the possibility of serious discord among negotiators and could lead to lawsuits. “If the (city) government (decides to) keep 1.4 million residents from receiving the services it has paid for already, than that’s a shocking set of circumstances,” Brain said. “But let’s assume some (L.A. City) Council members, because of their ego or pride, want to prevent the Valley from having power. How quickly do you think the DWP would lose customers?” Brain said if it had to, the Valley could push for a breakup of the DWP as well because, under state law, LAFCO is permitted to divide municipal assets. Brain also said a 1998 LAFCO report showed that, as another option, the Valley could use alternative utility providers and, if it did, the DWP “would probably go bankrupt.” Richard Close, chairman of Valley Vote, said technically both Brain’s and Power’s views are correct. For example, he pointed out to the commission, as the report was delivered, that the study shows the Valley now has only roughly 2,000 police officers and personnel at its disposal out of 13,645 budgeted positions for FY 2000-01. He said that translates into roughly 700 police personnel on duty at any one time in the Valley. “This clearly shows that we aren’t getting our fair share of services,” Close said during a press conference after the LAFCO meeting. But back to the issue of contracting for services, Close cautioned that political views would have to take a back seat to the law. “In the final analysis, (because he is an attorney) William Powers knows the law is the law and Valley Vote is going to comply with whatever LAFCO determines is necessary.” Close, also an alternate LAFCO board member, said criticism of the study from those on both sides of the debate is a foregone conclusion. But he cautioned that the study’s findings prove that the push for secession has made it through the legal hurdles and is likely to make it to the ballot and pass muster with the voters. “This process could have been all over,” said Close. “LAFCO’s consultants could have said (a breakup) doesn’t meet statutory requirements and that would have been it.” Once a final proposal for secession is submitted, LAFCO will determine if the plan is viable enough to put to the voters. But Close said there is little doubt the commission will accept the proposal because its own study has already shown secession would be fiscally viable. “LAFCO does not have the discretion to keep it off the ballot if it meets the statutory requirements. And what we saw yesterday and with the report is that it does,” Close said. In order for a secession measure to pass it must receive a majority of votes both in the Valley proper and in the entire city of Los Angeles. But because the Valley represents roughly 49 percent of the votes cast, and voters in other parts of Los Angeles stand to inherit a smaller local government as a result of a Valley breakup, it isn’t likely to face much opposition, Close said. There are costs involved in a breakup. In the Valley’s case, the study is projecting those to be at least $7.7 million and as high as $13 million. Supporters say that money would be quickly recouped through projected surpluses over time. Financially, the study shows that even with a $68 million annual payment to Los Angeles, the Valley would have an available cash balance of $20 million by 2005. The findings of the study, said Brain, “sure make the people that have been saying this wasn’t viable and we’d be deep in debt look pretty silly. We got a worst-case scenario and we still come out with a surplus.”