February 27, 2000 - From the February, 2000 issue

A Private Sector Fish In Public Sector Waters: New L.A. CRA Administrator Jerry Scharlin

The L.A. CRA has been embattled for some time, with periodic talk of L.A. City Council takeover and controversy surrounding a new Northeast Valley project area. In the midst of this fray steps private sector turnaround specialist Jerry Scharlin, who immediately found himself under fire for threatened cutbacks and firing two key employees. TPR was pleased to speak with Scharlin about his goals for the Agency and the remaining challenges that lie ahead.


Jerry Scharlin

Jerry, you took over a tough job at a tough time, and you've now asked for and received an extension of your contract, albeit only for a year. Let's start by asking you to introduce yourself to our readers. Give us a brief synopsis of your background, how you came to this position, and what's attractive about this opportunity.

I spent most of my career with the Victor Palmieri Company, a corporate turnaround and asset management firm. And for many of those years, I had the privilege of working for Julian Burke.

Julian called me about six months ago explaining that the CRA was in a crisis of some sort and that the Mayor's Office was wondering if I'd assist for a short time, which I agreed to do.

Part of the attraction was that the challenge was formidable. Moreover, this Agency is very worthwhile-it has a great potential to help needy communities.

Knowing little about the Agency or the public sector, I approached the situation almost like a scientific problem, attempting to obtain an independent sense of the reality and to identify the most critical issues. In the early weeks, I read numerous documents and interviewed as many people as I could both inside and outside the Agency.

An early concern and goal was to produce a budget acceptable to the Agency's Board, who had rejected previously submitted budgets. So completion of a budget acceptable to the Board and City Council was important. Furthermore, the process by which the Agency completed the new budget was relevant to me and reflects much of my current approach to fundamental Agency issues. That process was highly participatory. The inclusion and active involvement of as many key employees as possible was critical. I did not produce the new budget; it was produced by the employees.

Like Julian Burke, you bring tremendous private sector experience to turnaround situations. But public administration is new for you, and like Julian Burke, you already have had some crisis at the CRA. How difficult is it to operate in a public fishbowl while trying to do a turnaround? Are the challenges positive, or are they more difficult than you had expected?

It's much more difficult than the private sector because there are so many more players. For example, there are employees within the Agency who think they are authorities unto their own. They are able to go to Council members and other powerful players outside of the Agency when they want to impact or even reverse management decisions. Early on, I was shocked when one employee told me, "You may think that because you have been selected by the Mayor, appointed by the Board and confirmed by City Council that you run this Agency, but you do not." That comment, while disturbing, is true in important ways-for various reasons, one doesn't have the same level of control over employees and management issues as one does in private industry. That's one of the reasons governmental bodies appear so consistently dysfunctional. However, the additional challenge makes it much more interesting, in an odd way.

But the area that was the greatest shock to me, which brought some sadness, was recognizing the degree of racial and ethnic politics in this City. One can take disciplinary action-which in one's own mind is against a single employee-that ends up having great, though unintended, social and political symbolism to both employees and other stakeholders outside the Agency. That was very surprising to me, hard to deal with, and hurtful. This Agency's goal-my goal-is to settle some of those issues down.

Your budget for this year warned that 20 of the Agency's 31 projects will lose money, and that declining revenues from the Bunker Hill project area threaten CRA's historical subsidies to other less profitable projects. What are the Agency's plans for dealing with shrunken assets? Will we see some CRA project areas scaled back?

Over the long run, I'm not sure. Today, I'm not prepared-nor do I believe it is necessary-to rush into that decision. It clearly appears that we're facing a future of less revenue, possibly necessitating a future scaling back of both specific programs within project areas and possibly the number of employees. But we're not there yet. Importantly, I don't want to do that. Rather, I'm first trying my best to find strategies that will increase both revenue and operational efficiency.

There are various aspects to the revenue issue. Over the long-term this Agency has to be more sensitive to, and perform work that results in, revenue generation-tax increment revenue. That focus is important not only as a revenue source, but as an indicator of this Agency's success or failure in its core business. In the short-term, we need to aggressively look for more grant money. We also need to cooperate more with other City agencies in order to leverage our own efforts.

Moreover, as a result of our current efforts in organizational improvements, I hope Agency employees will be better equipped to deal with the consequences of a downturn, should it occur. It will be easier for them if they understand we've made every effort to improve revenue, efficiency, and internal order and fairness. Given that we operate in the public sector, we can't easily deal with the possibility of reducing projects or employees (should it come to that) without first getting Agency employees to start thinking about how to survive in their environment and what the Agency's real choices are. In the past, the Agency hasn't dealt well with such issues. Hopefully, more employees will begin to think of this Agency as an enterprise that requires a comprehensive and coherent plan for its own survival.

Jerry, the CRA is a State agency but managed by the City. And it's one of a number of City agencies and departments that deal with economic development and neighborhood revitalization. Many skeptics have asserted that the Mayor and the City are-and have been for years-without a clear approach to economic development. From your perch at the CRA, could you articulate the City of L.A.'s economic development agenda? Is the City now organized to implement such an agenda?

Though the Mayor's staff has made monumental efforts with some real successes, I'm not aware of a comprehensive economic strategy for the City. That's also the responsibility of the City Council.

But I don't see an entity or department with that clear responsibility. It may not take many people to create such a strategy, but some group of individuals should be given the responsibility to develop one. If City Council were to support a proposed citywide strategy from such a group, then the other government departments, including the CRA, should be directed to implement that work. It will take a combination of all the agencies-the CRA can't do it alone-to make any real impact. What's missing is the strategy, the substance, rather than a reorganization or debate about governance.

Have there been discussions since you've joined the CRA, at the highest levels of CRA, CDD, the Housing Authority, the Mayor's Office and the other similar agencies, about what the City's strategy should be? Who would call such a meeting?

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If such a meeting has been held, I'm not aware of it. As to where the strategy discussion should take place, it ought to be an entity independent from other City agencies because one needs to separate strategy from implementation-especially when the implementing agencies are so bureaucratic and politicized.

The best answer is a separate department that can give real guidance to the City and its departments-including the CRA.

In your recently issued Organizational Improvement Plan for the CRA, you said that the Agency needs to move toward a "project-centered organization." Explain to our readers, if you would, more about what you mean, and how that differs from the Agency's current structure.

It's really a formalization of how the Agency does its work currently. Our work requires the cooperation of various talents, but we haven't efficiently organized, and we haven't clearly or in enough detail documented our objectives-who's on the team, what the timetable is to complete the work, the budget, etc. By formalizing that process and monitoring it, we'll have greater accountability and hopefully greater productivity.

Again, some of that now happens informally, but we aren't keeping track of the team efforts or holding people accountable in a systematic way.

Do you need administrative or legal reforms to implement this kind of Agency restructuring?

No. We're in the process of implementing our Organizational Improvement Plan.

The CRA is proposing a new project area in the Northeast San Fernando Valley that would be three times as large as the rest of the project areas combined. Again, balancing structural change in a political environment, address why this new project area is needed and how it gets balanced against the needs of the other blighted and project areas overseen by the CRA.

First, it's not commonly understood that each project area is a separate legal and economic entity. For example, one can't transfer assets from a Valley project area into a Center City project area.

The broader issue relates to whether or not this Agency, in terms of its stretched financial and human resources, currently has the capacity to have the needed impact in many of its project areas. The appropriate size of the area and how effective we are likely to be is a separate analysis, not yet completed.

One internal change is to be much more conscious of creating practical five-year strategies, linking those strategies to five-year cash flow projections, and then linking those back to current year budgets. At least in the recent past, we haven't done that very well.

In combination with the team-centered approach, we hope to get a better handle on these various project areas, including the proposed one in the Northeast San Fernando Valley.

I've visited the proposed Valley project area site. The people there desperately need help. Large parts of the area look like a third world country. Someone, some agency, some department, many departments, the City, the Valley-someone needs to help.

Jerry, how do you want to be evaluated in a year's time regarding the CRA and your administrative task? What criteria should a Mayor employ?

The organizational changes we're rolling out will be largely functioning in a year. I'm not sure there will be a lot of hard product difference on the ground, but we'll be receiving many more internal reports which should allow us to manage better. We'll have more of a sense of how we're doing in different geographic areas, as well as entity-wide, which will enable us to make more thoughtful evaluations and take corrective action.

My other hope is that this Agency will be more comfortable for its employees. It's been very stressful for everyone, for a very long time. The challenges for the Agency will never end, but if we can make it a more comfortable, rational, reasonable place to work, I'll think of that as success.

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