In February 2002, Jerusalem Mayor Uri Lupolianski told the municipal council, "As far as I remember, the duty to report on the activities of the municipal subsidiary companies to the council has been fulfilled, and the Finance Committee has dedicated four meetings to the issue. So I believe that all reports about [this issue] have been given to the city council members as required." Two months ago, in a letter addressed to the mayor, opposition city council member Avi Kostelitz (Jerusalem Will Succeed) wrote, "The only problem with your statement is that the municipal secretary has just written me that 'for more than a decade, the municipality has not had a list of 'subsidiary companies and associations in the municipality.'" "So I am asking you," continued Kostelitz, "How do these two statements go together?" Apparently, they don't. It is two months later and Kostelitz is still waiting for the mayor's answer to his letter. Actually, In Jerusalem has learned that the municipality secretary, Nathan Mansour, is still working on the compilation of the list. Sources in Kikar Safra say that the list should be released within a few weeks. Meanwhile, both the municipal comptroller, Attorney Shlomit Rubin and the municipal legal counsel, Yossi Havilio, have told IJ that they are aware of - and concerned by - the fact that few, if any, in Kikar Safra seems to know exactly how many municipal companies, subsidiaries, and associations there are. Even more importantly, the law requires that each such public company include representatives of city council members, municipal employees, and the public, yet it remains unclear who represents the publics' interests in these companies. Kostelitz is convinced the municipality doesn't have the slightest idea about the situation. Some support for this position can be found in several of comptroller Rubin's reports. More than once, she has pointed to the fact that, municipal officials do not know which companies exist or why. "The municipality does not have a monitoring system to monitor the activities of the different associations and companies that it owns or in which it holds shares..The municipality does not operate any follow-up system nor any control over their projects or the use of their budgets, which come in large parts from its budget, which is of course, public money," stated Rubin in one of her several reports on these companies. The general term, subsidiary company, applies to different types of organizations: associations, incorporated companies, companies and not-for-profit organizations. Although their legal structures are different, all of these institutions share some form of partnership or relationship with the municipality, whether through shares that the municipality holds in the project or through budgets and allocations from the municipal annual general budget; all act on behalf or according to the municipality's plans; and the municipality is supposed to be represented on their board of governors. Since this budget comes primarily from taxes, Kostelitz points out, "That is the first reason that we should all - council members and all Jerusalemites - find out what's being done with our money." But as Kostelitz' unanswered letter and Rubin's and Havilio's warnings seem to show, no one seems to know what's being done with our money. A review of the municipality's official website and of the websites of the known companies doesn't provide many answers, nor was IJ's request from the municipality for such a list answered. Thus, IJ's first task was to attempt to compile a realistic list. Even with the help and support of numerous official and unofficial sources inside Kikar Safra, we were unable to complete our mission successfully, and we are confident that the list below is correct - but far from complete. IJ was able to identify 18 various companies and organizations:
The International Congress Center
Jerusalem Theater A not-for-profit organization, with municipal representation.
The David's Tower Museum A not for profit organization. The municipality has three representatives on the board, and the mayor is the chairman of the board.
The Biblical Zoo Jointly owned by HARLY (see below) and the municipality.
The Botanical Garden Jointly owned by the municipality and the university.
Yad Labanim Not for profit organization of the municipality. The national organization of Yad Labanim refuses to recognize this local branch.
Ammunition Hill Not for profit organization, its structure and funding remain unclear.
The Rene Cassin Association for the Advancement of Education
The Society for the Development of East Jerusalem (Hebrew anacronym: PAMI) Responsible for the development and operation of tourist sties in east Jerusalem, including the Russian Church, the Scottish Church, parts of the Old City Walls, Merkaz Davidzon, the alternative Kotel for the Reform and Conservative Movements. Funding shared by the government (2/3) and the municipality (1/3).
The Authority for the Development of Jerusalem (Hebrew anacronym: HARLY) The largest company, two-thirds of which is funded by the government and 1/3 by the municipality.
Hagihon Responsible for water supply and billing. Hagihon is expected to become a private company over the next few years.
Karta Established in 1972 for the sole purpose of developing the Mamilla project, which remains incomplete to this day. The municipality holds approximately 26 percent of the companies holdings.
The Society for the Development of the Jewish Quarter
Ariel Responsible for cultural events within the city.
Eden Responsible for the physical improvement of the city center
Moriah In charge of construction and infrastructure projects. See box.
The Jerusalem Society for Community Centers
Prazot Jointly held by the Housing Ministry (2/3) and the municipality, charged with finding housing solutions for handicapped, disabled, and individuals and families served by the municipal welfare department.
Of course, not all of these organizations share the same status. Some of them are what are known in Hebrew as "amutot", that is not-for-profit organizations, such as the Rene Cassin Association for the Advancement of Education. Others are incorporated companies in which both the State and the municipality hold shares, such as Karta and Moriah.
Yet others are held by the municipality and the state, such as Prazot, owned by the municipality and the Housing Ministry. Yet others, such as HARLY, have an special independent status, but still receive municipal funds.
Moriah, Ariel, Eden and the Biblical Zoo are all directly budgeted frm the municipal budget.
Companies such as Moriah were originally created to facilitate smooth municipal functioning and to complete projects in which the municipality could not or did not want to become directly involved. Huge projects, such as large construction projects, needed a more flexible, less bureaucratic, and more specifically-staffed organization to promote them.
Jerusalem isn't the only municipality that does this, and the phenomena isn't new. Some of these companies, such as Karta and Hagihon, were established decades ago. And until recently, the national government held dozens of such companies and associations.
But in Jerusalem, complains City Council member and head of the municipal auditing commission, Pepe Alalu (Meretz), the idea has caught on too well.
"In the long run, every time the municipality or the person at its head wanted to override the rather strict rules of the public service and the dictates of the law, they preferred to use or establish an auxiliary," he says. "The only reason why most of these companies were created was to avoid city council members' control," adds Alalu.
Thus, some of these companies actually duplicate municipal departments. Ariel, for example, is responsible for cultural projects in the city but thus acts in parallel to the municipality's own Department of Culture.
Kostelitz, formally director of the national Airports Authority, is also concerned about the lack of public supervision over public moneys.
"We cannot really supervise when things occur outside the city council, and especially when things are so badly or totally non-organized."
He points, for example, to expenditures by Moriah, whose construction projects along Hebron Road and throughout the city in preparation for the mass transportation system and the light rail have been extensively criticized in the municipal council and in the press.
In her 2003-2004 report, Rubin emphasizes that while the municipal representatives do not receive remuneration for their services, they are, in fact, often rewarded with social honors, power and status.
"The problem," Rubin pointed out, "is that these representatives are not chosen according to any sort of public or known criteria. We do not have a local variation of the 'Ravivi Commission' [the commission that evaluates the credentials and suitability of candidates for directorates of national companies - PC] to select them for the job.
"Actually there is no way to know why these specific people were appointed, and nobody ever looked into their CV's in order to ensure that there are no conflicts of interestâ€¦this is unacceptable in public service."
Kostelitz concurs. "You don't know why specific people were chosen, you don't have a clue as to their capacities to fulfill their duties, you have no way to know if the projects have been conducted in the best proper way, with the best treatment that public money deserves."
What may be unacceptable to comptroller Rubin, "happens all the time," says Allalu.
He points to a few "unacceptable but common" examples: Following the findings in several comptroller's reports, and especially after the comptroller discovered that Moriah had been working with the same attorney for more than 15 years, the city council decided to mandate that auxiliary companies are permitted to work with external lawyers and accountants for a maximum of three years.
"That specific case was particularly problematic," explains Kostelitz, "since the private lawyer that Mayor Lupolianski hired to represent him in court when the municipal legal counsel, Havilio, refused to do so, is a partner in that same firm that had worked with Moriah for all those years."
The mayor, Kostelitz points out, is, by law, chairman of the board of Moriah. "This creates a clear case of conflict of interests, which should be avoided at all costs, but Lupolianski did not hurry to order any change in the legal firm."
To this day, more than two years after the municipal council decided to limit the term of service to three years, Moriah continues to engage the same firm and intends to continue to do so.
In another case, as reported in her 2002-2003 report, Rubin discovered that the Rene Cassin Association, one of the municipality's associations and under its governance, approved allegedly irregular financial transactions.
The comptroller's most recent report on Moriah provides a disturbing example of the problematics. According to her findings, the head of the Moriah department responsible for assignment of projects to outside vendors, Ya'akov Halpern, is himself a contractor in building field. Rubin further contends that Halpern was never required to sign any declaration nor was he - nor any other director or board member - every asked to deliver proof that they had never been involved in any crime, as is required by law.
According to the Rubin's reports, such appointments are intended for a period of no more than three years, "but this is never done."
Even Havilio, the municipal legal advisor, was unable to obtain definitive information regarding the representatives of the municipality who serve on these companies. "There is a huge difficulty in finding out all the companies and the list of municipal representatives and there is no municipal official responsible for this list," Havilio wrote to the mayor in May 2004.
In at least one case, according to the comptroller, new board members were appointed while some of the previous board members were still serving, but none of them were representatives from the opposition, even though this is a legal requirement.
The comptroller is also concerned regarding the lack of supervision over hiring of employees for the companies. Governmental companies are required to issue a tender for each position, but this law does not apply to the municipal companies.
"They [the companies, associations, and amutot] can hire whomever they want. Although the Interior Ministry is currently working on creation of a regulation that might create some order here, for the moment, this is an open door for problems," says Alalu. "I call it 'working far away from the eyes of the elected representatives.'"
Furthermore, because there is no supervision, the companies have become a shelter for employees fired from the municipality, accuses a source in the municipality. This is particularly relevant at this time, since the municipality is currently laying off thousands of workers as part of its fiscal rehabilitation program.
"People receive very generous conditions when they are let go, then, a few days later, you find some of them right back in the municipality - in Moriah, Ariel HARLY, and the other companies," Allalu contends.
In fact, the board of Moriah recently passed a regulation that they will not hire former municipal employees until at least one year has passed since they left their municipal employment. But Moriah is the only company known to have passed such a regulation.
In the case of Hagihon, the water supplier for the city, which, among its other functions, issues our water bills, the city council and the comptroller's department are concerned because Hagihon, separately incorporated as it prepares for full privatization, can have its own comptroller. This creates a situation in which the comptroller is currently paid for by public funds yet the representatives of the public who are responsible for overseeing the company, can have no control over his wages, working hours, competence, etc.
Through the city council, the municipality designates its representatives and allocates budgets - annually or per project - from what is known as "the special budget."
Thus, for example, budgets allocated to the Ariel Company are recommended by the Finance Committee and approved by the municipal council.
"The fact is that we allocate public money to companies whose board members were chosen for reasons we don't know and I think we should all feel uncomfortable," emphasizes Kostelitz.
Yet perhaps the most surprising finding is that the use of these companies doesn't guarantee that the taxpayer will pay a lower price or receive a better service.
A source in the municipality explained the system. "The companies charge a flat sum for overhead, which is a sort of reversed 'coupon.' Instead of making things cheaper, it actually raises the price, so, in the long run, there is no benefit to the public."
There are a number of large-scale projects currently being implemented in the city, and four companies -- HARLY, Moriah, Eden and PAMI - are involved. Each of them, says the source, has a "part" of the general budget, meaning that they add the cost to their profit, since this is the money they need in order to pay salaries and expenses.
So the bottom-line, final cost of the project is often higher than it could, or should, have been.
Concludes Alalu, "And so, here we are today, with this long list of subsidiary companies, and I don't really believe that we even need most of them."
Despite IJ's repeated requests, the municipality declined comment in response to inquiries regarding this report.