The Bank of Los Angeles: A Blank Check for the City?

Photo courtesy of channone, flickr

Photo courtesy of channone, flickr

Last Tuesday, the Los Angeles City Council passed a Herb Wesson sponsored motion, without any discussion, that requested “the City Attorney, with the assistance of the Chief Legislative Analyst, to prepare and present the documents necessary to place on the November 2018 Ballot the necessary amendment to Section 104(g) of the City Charter to authorize the City to form a municipal bank.”

The proposed City owned Bank of Los Angeles would “provide financial services to residents, reinvestment in the City to support the development of affordable housing and local infrastructure, and banking solutions for other local businesses that are not currently served by the commercial banking industry.”  There have also been discussions about the Bank serving the unbanked, cash intensive pot industry.

Yet despite all the hype associated with the municipally owned Bank of Los Angeles, the City has not prepared a business plan or even an outline of a plan for the Bank.  Rather, the City is asking us to give the City Council and Mayor Garcetti a blank check to establish the Bank despite a well thought out report by the Chief Legislative Analyst that identified numerous problems.

These limitations include that there is no identified source of funds to capitalize the Bank (estimated to be more than $1 billion), that City funds could not be deposited in the Bank for at least three years, that the Bank would have difficulty providing adequate collateral to support the City banking requirements, that the Bank would have difficulty qualifying for deposit insurance, and that start-up costs would be “exorbitant” with no available sources of cash to cover these losses.

After listening to the February 28 meeting of the Ad Hoc Jobs Committee where the Chief Legislative Analyst’s report was discussed, it was apparent that the members of the City Council have no clue about the banking business, the need for excellent management and strong credit standards, and that loans are not grants and need to be repaid.

Rather, the members of the City Council view the Bank as a source of cash to fund their pet projects and those of their cronies. But loans, both principal and interest, need to be repaid on a timely basis if the Bank is to remain solvent.   Otherwise, the Bank is out of business, the equity capital is wiped out, and the depositors take a hit.

This was certainly the case with the Los Angeles Community Development Bank that was established after the 1992 riots with money from the Federal Government.  But this loan fund that was under the control of the City Council closed its doors in 2004 because too many of the politically connected borrowers failed to meet their obligations.

However, with the Bank of Los Angeles, it is our money, not the Washington’s, that is lost if the Bank tanks.  And it the City takes a hit, it would have an adverse impact on the already poor level of service we receive from the City.  …

Click here to read the full article from City Watch LA

Making the Housing Shortage Worse

Rent ControlWe have a severe housing shortage, and last week our mayor said that he’d help make matters worse.

If Eric Garcetti gets his way, rent control could be imposed on far more apartments in Los Angeles and throughout the state. That’d be great for the few folks lucky enough to get a rent-controlled unit. It’d be bad for everybody else.

That’s not a surprising statement. Studies have shown that. Let’s look at one of the latest.

A working paper published in January by the National Bureau of Economic Research examined the effect of a 1994 ballot initiative in San Francisco that slapped rent control on smaller buildings constructed before 1980. Three economists followed what happened to those buildings and compared their fate to similar buildings constructed after 1980.

So what happened? First, there was a reduction in the number of rent-controlled units as landlords decided to convert their buildings to condos or otherwise redevelop their properties. In fact, rent-controlled buildings were 10 percent more likely than the non-rent-controlled buildings to convert, “representing a substantial reduction in the supply of rental housing,” the report said.

Second, there was a 25 percent reduction in the number of renters living in rent-controlled units compared to 1994, largely because of “landlords demolishing their old housing and building new rental housing,” the study said. “New construction is exempt from rent control.”

So there was a drop in the number of rental units as well as a decrease in the number of tenants who enjoyed rent control. No surprise there.

In short, rent control makes matters worse, which pretty much every informed person knows with the apparent exception of Garcetti. What was a teeny bit more surprising was the working paper’s assertion that rent control increased gentrification as well as worsened income inequality in the city.

How so? One of the authors of the working paper, Rebecca Diamond, an assistant professor of economics at Stanford University, was quoted as saying that rent control “pushed landlords to supply owner-occupied housing and new housing – both of which are really the types of housing consumed by rich people,” she said.

“So we’re creating a policy that tells landlords, ‘It’s much more profitable to cater to high-income housing taste than low-income housing tastes.’”

In other words, rent control makes matters much worse.

What’s particularly alarming about last week’s news is that the current move to impose more rent control would make matters even worse than you might expect. That’s because the proposed statewide ballot initiative that would roll back the Costa-Hawkins Rental Control Act (the initiative which Garcetti last week called a news conference to endorse), would not only give cities the green light to allow rent control to be slapped on apartments built after 1978, but it would take the extra step of limiting the ability of landlords to raise rents after one tenant leaves. The way it works now is that when one tenant leaves a rent-controlled unit, the rent can immediately catch up to market rates for the incoming tenant. Rent increases are limited thereafter, until that tenant leaves.

That provision alone is a killer. It would mean landlords would be doomed to falling further and further behind market rates. That means more apartment buildings would not pencil out, and landlords would rush to empty out their buildings, scrape the ground and construct something new – something that’s not an apartment building. We’d see declines much greater than 25 percent in tenants enjoying rent control.

Look, the yearning to do something is understandable. After all, rents have popped up alarmingly and even folks with good incomes are being priced out of homes. But imposing more rent control would only choke supply and make matters much worse.

The real issue is supply. If we had more construction, the shortage would eventually disappear. But for that to happen, developers need to feel confident that they can build with the certainty that they can earn enough income to pay their mortgage and other bills and get a reasonable return. Right now, they can’t. And mayoral endorsements of rent control make matters worse.

ditor and publisher of the San Fernando Valley Business Journal.

This article was originally published by Fox and Hounds Daily

Cap and trade is looking more and more like a tax

cap-and-trade-mindscanner-sstockThe veneer that keeps everybody from seeing that the cap-and-trade program is really just a tax is coming unglued.

Mayor Eric Garcetti blasted out an email newsletter happily announcing that the Jordan Downs public housing development in Watts will be refurbished with money from the hidden tax you’re paying for gasoline and electricity.

Watts will receive a $35 million grant of cap-and-trade funds, which Garcetti said will help make “dreams come true” with “improved quality of life, a renewed focus on public health, and better access to affordable housing.”

The city said the work on Jordan Downs will include rebuilding “distressed” units, creating recreational programs, and opening “about 165,000 square feet for retail.”

The funds will also pay for solar panels, a food waste prevention program, and 10 electric buses.

The cap-and-trade money comes from the state’s Greenhouse Gas Reduction Fund, which takes in revenue from the sale of allowances to emit greenhouse gases. The allowances, sold at state auctions, are purchased by companies that generate electricity, refine petroleum, make cement and process food. The prices of those things in California now include the cost of buying these permits to emit greenhouse gases.

Other states don’t do this, but in 2006, to save the planet from global warming, California passed a law to require a reduction in greenhouse gas emissions. Under the mandate now set in current law, greenhouse gas emissions statewide must be 40 percent below 1990 levels by 2030.

To achieve this goal, the California Air Resources Board developed the cap-and-trade program. It puts a statewide limit on GHG emissions, and businesses that are under the law are required to have a permit for each ton of GHG emitted. Every year fewer permits are issued, and the minimum price is a little higher.

The money that’s paid to the state for these permits looks a lot like a tax. But a state appeals court ruled that it’s not a tax, because it’s not compulsory. Any business that doesn’t want to pay it, the court reasoned, could simply go out of business.

Now you know why other states don’t do this.

For California politicians, the cap-and-trade funds are like a gift from heaven. Gov. Jerry Brown is spending them on the bullet train, which is barred by law from being funded with a tax increase. And the Legislature can hand out the rest of the loot to local governments and organizations seeking funding for pet projects.

To help spend the money, lawmakers created a committee called the California Strategic Growth Council and tasked it with advancing the revitalization of local communities. The SGC oversees the Transformative Climate Communities program, which considers grant applications from community groups, like the Watts Rising Collaborative, an advocacy organization made up largely of departments of the city government.

So your city tax dollars are being spent to lobby for cap-and-trade funds that come from the extra money you’re paying for electricity, gasoline and anything that’s made or moved in California.

Some of the $35 million grant for Watts will be spent to connect residents with new jobs created by TCC projects, and in a hint of how the spending will work out in practice, the funds will also be used for a “displacement avoidance plan” which will provide resources to “educate residents about their housing rights.” In other words, gentrification.

But nobody’s admitting that. It’s all under the banner of fighting climate change.

The president and CEO of the Housing Authority of the city of Los Angeles, Douglas Guthrie, said the Housing Authority is “proud to be leading this transformational initiative to build a healthier Watts” with “greenhouse gas reduction strategies.”

It’s just a tax. All of California accounts for only 1 percent of worldwide greenhouse gas emissions, so cutting emissions to 40 percent below 1990 levels is an exercise in futility, if what you’re really worried about is climate change.

Politicians are not really worried about climate change.

The cap-and-trade program is turning into a tax for community redevelopment and for a plain old slush fund. It doesn’t help Earth’s climate, but it does real damage to California’s business climate. Cap-and-trade is a hidden tax on energy that is making everything in California more expensive than in other states.

The biggest challenge for regulators is to prevent the prices of the allowances from going up too sharply. It might bring the game to a crashing end if people noticed the economic damage they’re enduring. When the voters put two and two together, things can heat up fast.

Columnist and member of the editorial board of the Southern California News Group, and the author of the book, “How Trump Won.”

This article was originally published by Fox and Hounds Daily

Cap and trade is looking more and more like a tax

The veneer that keeps everybody from seeing that the cap-and-trade program is really just a tax is coming unglued.

Last weekend, Mayor Eric Garcetti blasted out an email newsletter happily announcing that the Jordan Downs public housing development in Watts will be refurbished with money from the hidden tax you’re paying for gasoline and electricity.

Photo courtesy of Eric Garcetti, Flickr.

Photo courtesy of Eric Garcetti, Flickr.

Watts will receive a $35 million grant of cap-and-trade funds, which Garcetti said will help make “dreams come true” with “improved quality of life, a renewed focus on public health, and better access to affordable housing.”

The city said the work on Jordan Downs will include rebuilding “distressed” units, creating recreational programs, and opening “about 165,000 square feet for retail.”

The funds will also pay for solar panels, a food waste prevention program, and 10 electric buses.

The cap-and-trade money comes from the state’s Greenhouse Gas Reduction Fund, which takes in revenue from the sale of allowances to emit greenhouse gases. The allowances, sold at state auctions, are purchased by companies that generate electricity, refine petroleum, make cement and process food. The prices of those things in California now include the cost of buying these permits to emit greenhouse gases.

Other states don’t do this, but in 2006, to save the planet from global warming, California passed a law to require a reduction in greenhouse gas emissions. Under the mandate now set in current law, greenhouse gas emissions statewide must be 40 percent below 1990 levels by 2030.

To achieve this goal, the California Air Resources Board developed the cap-and-trade program. It puts a statewide limit on GHG emissions, and businesses that are under the law are required to have a permit for each ton of GHG emitted. Every year fewer permits are issued, and the minimum price is a little higher.

The money that’s paid to the state for these permits looks a lot like a tax. But a state appeals court ruled that it’s not a tax, because it’s not compulsory. Any business that doesn’t want to pay it, the court reasoned, could simply go out of business.

Now you know why other states don’t do this.

For California politicians, the cap-and-trade funds are like a gift from heaven. Gov. Jerry Brown is spending them on the bullet train, which is barred by law from being funded with a tax increase. And the Legislature can hand out the rest of the loot to local governments and organizations seeking funding for pet projects.

To help spend the money, lawmakers created a committee called the California Strategic Growth Council and tasked it with advancing the revitalization of local communities. The SGC oversees the Transformative Climate Communities program, which considers grant applications from community groups, like the Watts Rising Collaborative, an advocacy organization made up largely of departments of the city government.

So your city tax dollars are being spent to lobby for cap-and-trade funds that come from the extra money you’re paying for electricity, gasoline and anything that’s made or moved in California.

Some of the $35 million grant for Watts will be spent to connect residents with new jobs created by TCC projects, and in a hint of how the spending will work out in practice, the funds will also be used for a “displacement avoidance plan” which will provide resources to “educate residents about their housing rights.” In other words, gentrification.

But nobody’s admitting that. It’s all under the banner of fighting climate change.

The president and CEO of the Housing Authority of the city of Los Angeles, Douglas Guthrie, said the Housing Authority is “proud to be leading this transformational initiative to build a healthier Watts” with “greenhouse gas reduction strategies.”

It’s just a tax. All of California accounts for only 1 percent of worldwide greenhouse gas emissions, so cutting emissions to 40 percent below 1990 levels is an exercise in futility, if what you’re really worried about is climate change.

Politicians are not really worried about climate change.

The cap-and-trade program is turning into a tax for community redevelopment and for a plain old slush fund. It doesn’t help Earth’s climate, but it does real damage to California’s business climate. Cap-and-trade is a hidden tax on energy that is making everything in California more expensive than in other states.

The biggest challenge for regulators is to prevent the prices of the allowances from going up too sharply. It might bring the game to a crashing end if people noticed the economic damage they’re enduring. When the voters put two and two together, things can heat up fast.

Susan Shelley is an editorial writer and columnist for the Southern California News Group. Reach her at Susan@SusanShelley.com and follow her on Twitter: @Susan_Shelley.

This article was originally published by the Orange County Register

Making housing more expensive to build won’t make it more affordable

Housing apartmentOnly a politician could believe that making housing more expensive to build will create more affordable housing.

But in Los Angeles, that’s what Mayor Eric Garcetti and the City Council are asserting. In December, they approved a new “linkage fee” on new development aimed at raising $100 million per year toward a goal of building 1,500 units of new affordable housing annually.

Don’t bother with the math. They didn’t.

The idea of a linkage fee, which exists in some other cities, is to get money from developers whose projects will displace residents in existing housing or generate a need for additional housing, something that could happen if a new workplace was built.

Hardly anybody is building a new workplace in Los Angeles unless it has a drive-through, but play along.

The “linkage fee” in Los Angeles won’t specifically be linked to the impact from a project. It’s simply a new fee for building in the city.

The early draft of the linkage fee, which has been on Mayor Garcetti’s wish-list since 2015, would have imposed the same fee for similar developments regardless of where they were located in the city. But some council members objected to the one-size-fits-all charge.

So the final version divides the city into “high-market” areas like downtown, Venice and Brentwood, and “low-market” areas like South Los Angeles.

The linkage fee for office, hotel, retail and other commercial buildings is $3 per square foot in low-market areas, $5 per square foot in high-market areas.

For residential developments, the fee is even higher: $8 per square foot in a low-market area, $15 per square foot in a high-market area.

The money will go into the city’s Affordable Housing Trust Fund, and city officials say they’ll spend it to build hundreds of units of affordable housing.

Unfortunately, the number of Los Angeles residents who are in need of affordable housing is in the tens of thousands, and those are just the people sleeping on the sidewalks.

Meanwhile, the cost of all other new housing will go up, because developers have to pay these huge new linkage fees just to be allowed to build it.

There are two ways that residential developers can avoid the fees. One is by reserving a percentage of units in their projects for low-income renters. The other option, which is also available to developers of commercial projects, is to get out of Los Angeles and build somewhere else.

Many cities in the Southern California region don’t have linkage fees and don’t treat the construction of a commercial or residential building as a sin that requires some sort of political or financial penance.

In some places, local governments even offer incentives for developers and businesses, to encourage building and hiring.

That’s rare in Los Angeles, where the breathtaking decay of the city is considered incentive enough.

The state Legislative Analyst’s Office has done extensive research into the problem of housing affordability in California, including a detailed report released in the spring of 2016 titled, “Perspectives on Helping Low-Income Californians Afford Housing.”

“The scope of the problem is massive,” the report said, “Millions of Californians struggle to find housing that is both affordable and suits their needs. The crisis also is a long time in the making, the culmination of decades of shortfalls in housing construction. And just as the crisis has taken decades to develop, it will take many years or decades to correct. There are no quick and easy fixes.”

The LAO concluded that while “affordable housing programs are vitally important to the households they assist, these programs help only a small fraction of the Californians that are struggling to cope with the state’s high housing costs.”

To build public-subsidized affordable housing for the 1.7 million low-income California households that spend more than half their income on rent would cost more than $250 billion, by the LAO’s estimate.

But the problem is not just math, it’s logic. When it becomes more expensive to build housing, then less housing is built, and what is built is more expensive.

The LAO report said the real solution is more housing construction, and the scale of the problem can only be matched by privately built, market-rate housing.

“Doing so will require policy makers to revisit long-standing state policies on local governance and environmental protection, as well as local planning and land use regimes,” the report concluded.

So there really is something the government can do about housing affordability. It can get out of the way.

This article was originally published by Fox and Hounds Daily

Will Bay Area political crowd trump LA yet again?

Gavin newsomIt’s been a fait accompli that Gavin Newsom, the former San Francisco mayor and current lieutenant governor, will be California’s next governor after the iconic Jerry Brown heads off into the sunset next year. Moonbeam is a hard act to follow, having served as the state’s youngest and oldest chief executive, but it’s too bad California can’t at least muster a feisty and contentious political debate before crowning another Bay Area pol as successor.

You know, where politicians actually debate issues, take varying political stances and give voters a choice rather than a coronation.

It’s hard to understand Southern California’s inability to exert much clout at the highest levels of California government. Brown is from Oakland. U.S. Sen. Kamala Harris, the former state attorney general who got here start under the tutelage of former San Francisco Mayor Willie Brown, already is touted as the inevitable Democratic nominee for president.

Los Angeles Mayor Eric Garcetti, whose slim accomplishments certainly are on par with those of Harris, is mostly garnering skepticism for his possible presidential run. Sen. Dianne Feinstein is from Marin County and Senate President Pro Tempore Kevin de Leon is, of course, from Los Angeles, but he’s too busy dealing with an unfolding sexual-harassment scandal in his own chamber to have the time for a serious shot at her U.S. Senate seat.

De Leon and the low-key Assembly Speaker Anthony Rendon, D-Paramount, have the top legislative spots, but they’ve mostly rubberstamped the governor’s priorities. No one would suggest that either man is a true power broker – or is on the fast track to the governor’s mansion or the U.S. Capitol. There’s little doubt that Southern California politicians play second fiddle to their Bay Area counterparts and don’t even put up a fuss about it.

They rarely set an agenda that’s distinct from the one set by their Bay Area betters, so perhaps that explains why a region with so many people can’t seem to keep up with the power of an area that’s far less populous. San Francisco Democrats and Los Angeles ones are both progressive – but their priorities should not be interchangeable. The demographics and economies are vastly different between the state’s two megalopolises.

The latest Public Policy Institute of California poll offers some mixed news for Southlanders. For instance, Newsom’s latest lead is far lower than expected. He is favored by 23 percent of surveyed voters, with former Los Angeles Mayor Antonio Villaraigosa, also a Democrat, coming in a surprisingly close second at 18 percent. The other contenders, including the two lackluster Republicans (John Cox and Travis Allen), are in single digits. With the top-two primary system, the top two vote-getters face off in the general election even if they are from the same party.

In the Senate race, Feinstein is besting de Leon by a two-to-one margin, and around half of the voters surveyed had never even heard of de Leon, which is perfectly understandable given his underwhelming tenure in the Capitol. De Leon did throw a really cool $50,000 party at the Walt Disney Concert Hall in 2014 to celebrate his inauguration as Senate president pro tempore, but apparently the “glitz-fest,” as the Sacramento Bee called it, didn’t help any lasting name identification.

On the surface, Villaraigosa’s competitiveness in the gubernatorial race does offer hope that a Southern California politician could once again lead the state. But don’t get your hopes up. He admirably has taken on the teachers’ unions to advance school reform, but he also touched the third rail of politics, when he called for “changes” to 1978’s property-tax-limiting Proposition 13. Instituting a “split roll,” for instance, would dramatically increase the tax bill paid by commercial property owners.

This is more than a policy problem. Villaraigosa’s path to the governor’s mansion involves rallying Southern Californians, Latinos and remaining conservative and Republican-oriented voters. The latter comprise a falling 26 percent of voters, but it’s a significant enough block to create a path to victory. But attacking Prop. 13 tax protection is a nonstarter for that group.

Last November, former Orange County Congresswoman Loretta Sanchez seemed to embrace a similar political strategy (Latinos, mod Dems, Southern Californians, Republicans) to take on Harris for the U.S. Senate race, but despite her more moderate positions, her Latina background and SoCal credentials, Sanchez could only muster 38 percent of the vote. Unless, Villaraigosa expands his appeal, he is likely to face a similar fate.

“It looks just like the Harris race that it’s preordained that the candidate from the Bay Area will get the position rather than a qualified Latino candidate from Southern California,” said Alan Clayton, a San Gabriel Valley-based redistricting expert. “The political class in California protects its own, and they are significantly from the Bay Area.”

For Southern Californians to have a greater voice in Sacramento and Washington, D.C., Southern California Democrats have to speak with a more regional voice – one that focuses on public-sector reform, fiscal responsibility and on working-class concerns (jobs, housing, etc.) rather than the often-bizarre fixations of San Francisco liberals. Until then, expect a county that’s more populous than 40 other states to remain the lapdog to the Bay Area political establishment.

Steven Greenhut is a Sacramento-based writer. 

This article was originally published by Fox and Hounds Daily

The Delusion of Eric Garcetti for President

Photo courtesy of Eric Garcetti, Flickr.

Someone may be putting something in the Los Angeles water supply. In the past months, two unlikely L.A.-based presidential contenders — Mayor Eric Garcetti and Disney Chief Robert Iger — have been floated in the media, including in the New York Times.

But before we start worrying about how an L.A.-based president might affect traffic (after all this is the big issue in Southern California), we might want to confront political reality. In both cases, the case for our local heroes’ candidacies is weak at best, and delusional at worst.

The Disney fantasies

The Iger case is, if anything easier to dismiss. Iger can sell himself, like Trump, as a business success story, and with probably far-fewer questionable business transactions. Yet Iger, trying to run as a progressive in an increasingly left-wing Democratic Party, will face numerous challenges that dwarfs those faced by Trump.

Iger, for example, will have to run against the sad record of his company’s self-serving interference in Anaheim. Disney is generally a low-wage employer, and, in Orange County, this can be seen as contributing to the enormous disparity between cost of living and low salaries. I don’t suggest that companies should be primarily social justice warriors, but when a corporate executive runs, he’s going to be subject to their scrutiny.

Other problems also abound. For example, in 2016 the firm laid off 250 of its Orlando tech employees, replacing them with H-1B visas holders from an Indian outsourcing firm, and then, insisted that some train their replacements before being laid off. Let’s just say that won’t play well if Iger had to run against populists like Bernie Sanders, Elizabeth Warren, or even Joe Biden.

Should mayors run the world?

If Iger suffers from Mouse made illusions, Garcetti gets his from urbanist circles, who increasingly maintain that mayors should run the world. This may seem strange given that core cities account for barely a quarter of our major metropolitan population. In the Los Angeles metropolitan area, most of regional growth takes place well outside the urban core. The slow growing city, which was first claimed to have reached four million people in 2008, has still not achieved that number according to the U.S. Census Bureau.

Unfortunately for Garcetti, L.A. makes a hard sell as an exemplar for the economic future. Some cities like New York and San Francisco, have enjoyed robust expansions of employment in the past decade, but not Los Angeles. Overall, notes a recent survey in Wallet Hub of 150 cities in the country in terms of job prospects, ranked Los Angeles 115th well below less hyped places as Irvine, Rancho Cucamonga, Ontario and even Fontana.

Garcetti’s has tried to sell L.A.’s “silicon beach” as a hot tech location but, despite the success around the now faltering Snapchat, overall STEM growth over the past decade has been slightly negative. Remarkably for a one-time tech behemoth, the county now has less STEM employment per capita than the national average. At the same time, rankings of inequality and poverty, as measured by urban theorist Richard Florida, place the L.A. area, which includes the surrounding communities, dead last among the 20 largest metros. Overall the poverty rate in both the city proper and in the riot zone is higher now than before the 1992 riots.

Has Garcetti’s density agenda paid off elsewhere? One in four Angelinos, according to a recent UCLA study, spend half their income on rent, the highest again of any major metro.

Garcetti’s backers praise pro-density policies and hail him as a crusader against sprawl. But ordinary citizens are less enthused about his policies for narrowing streets, which has not only slowed traffic but also seen an increase in accidents; congested traffic also tends to generate more greenhouse gas. Garcetti gets kudos for his transit fixation but last year Los Angeles accounted for almost one-quarter of the strong national decline in transit ridership; in the period spanning his first term, Los Angeles lost 113 million annual rides, 16.6 percent of its 2014 ridership.

Deep blue visions on the national stage.

Of course, Mayor Garcetti is not to blame for all L.A.’s troubles, which have been festering for decades. His culpability lies with doubling down on failed policies. If someone is running for the highest office in the land, it’s nice to have something to brag about other than speculative high rises in the inner core and the arrival of two football teams, both scheduled to play in Inglewood.

The good news may be neither of these people are going anywhere. Both Garcetti and Iger seem unlikely to outdo California’s favorite daughter, Sen. Kamala Harris, in the early primaries. She may have little to show for her time in office — except for a genius for grandstanding — but her multi-cultural allure, to coin a phrase, trumps that of white male heterosexuals in today’s identity crazed Democratic Party.

Basically, my old New Yorker’s advice to both these guys is: “fuggedaboutit.” America may be nutty enough to nominate a Californian, but it won’t be either of you.

Originally published in the Orange County Register.

Cross-posted at New Geography.

Does Eric Garcetti – like Kamala Harris – have an eye on the White House?

Photo courtesy of Eric Garcetti, Flickr.

California Sen. Kamala Harris’ splashy first year in Washington has made her a fixture on lists of potential 2020 Democratic presidential candidates – and not as an interesting long shot but as someone with a strong chance.

While the California Legislature’s recent vote to move the state’s 2020 presidential primary from June to March was seen in the Golden State as yet another attempt to make America’s most populous, richest state more of a factor in deciding the presidential nomination, a Newsweekanalysis last month saw it as an attempt to boost Harris’ potential White House bid. The Newsweek headline: “Is Kamala Harris Now the 2020 Favorite to Take on Trump?”

In 2016, California had 548 delegates at the Democratic Convention – nearly one-quarter of the 2,382 needed for the nomination that year. The numbers are likely to be similar in 2020, potentially giving Harris a big boost in the nomination race after voting in Iowa, New Hampshire and a handful of other states possibly more inclined to back more familiar Democrats such as former Vice President Joe Biden, Vermont Sen. Bernie Sanders or Massachusetts Sen. Elizabeth Warren.

But there appears to be a fair chance that the assumption Harris would be the clear choice in the Golden State faces a huge complication: the presence of another popular, fresh California politician in the Democratic nomination mix.

Los Angeles Mayor Eric Garcetti has hinted that he’s thinking about running for governor in 2018 as well as president in 2020. After his recent appearance at the Sacramento Press Club, a Los Angeles Times account said his coy responses to questions about his political future “did little to dampen what has become a rowdy parlor game among California politicos: speculating on just what Garcetti will do next.”

The idea that Los Angeles residents might be upset about a Garcetti presidential bid because it would take him away from his duties as mayor is undercut by a Loyola Marymount poll released last month. It showed 63 percent of the 914 Los Angeles County residents surveyed were “strongly supportive” or “somewhat supportive” of Garcetti seeking the White House.

A Politico analysis in May offered a look at why a Garcetti bid intrigues some in the upper ranks of the Democratic establishment. It described him as a handsome 46-year-old who “was just re-elected to a second term with 81 percent of the vote, and is half-Mexican (he speaks Spanish fluently) and half-Jewish (he’s an active member of a very progressive L.A. synagogue), a Rhodes scholar and former Navy intelligence reserve officer.”

Harris, who turned 53 Friday, also has an attractive personal story in a Democratic Party on the lookout for candidates who can inspire large turnouts among young and minority voters. She has a Jamaican-American father and Indian-American mother and has been a trailblazer throughout her political career.

Both have records with fodder for attack ads

But if either Garcetti or Harris seek the White House, rival Democrats will have no shortage of fodder for attack ads.

Garcetti was first elected mayor in 2013 and cruised to re-election earlier this year, facing no serious opposition. He is considered hard-working and an impressive policy wonk.

But Los Angeles has emerged as the epicenter of American poverty in recent years thanks to high housing costs and the departure of Fortune 500 firms and mid-sized businesses alike. A 2014 blue-ribbon report commissioned by the City Council depicted Los Angeles as “facing economic decline, weighed down by poverty, strangled by traffic and suffering from a crisis of leadership,” according to a Los Angeles Times account. Garcetti has not reversed this downward arc, leading to a Los Angeles magazine article in August lamenting how Silicon Valley had far eclipsed the Los Angeles region.

As for Harris, her record during six years as attorney general was more mixed than some national coverage assumes – and at times at odds with now-ascendant Bernie Sanders-style populism. While she achieved high-profile wins in going after corporate malfeasance  – starting with shady mortgage lenders  – she was not a leader in criminal-justice reform in an era in which the movement built up momentum in California with dramatic changes in sentencing and parole laws. Some editorial writers challenged her description of herself as a “bold leader.” Jacobin magazine, which has a devoted following among progressives, was much harsher, depicting her as having “two faces” on crime and siding with reactionary tough-on-crime policies repeatedly while attorney general. Other liberal voices strongly agree, as the New Republic reported in August.

As California AG, Harris also continued a long bipartisan tradition that appalls good-government advocates: writing slanted descriptions of ballot measures that are meant to help or hurt the proposals. In 2015, for example, the liberal San Francisco Chronicle editorial page blasted Harris for ballot language that effectively killed a pension reform campaign in its infancy.

This article was originally published by CalWatchdog.com

L.A.’s Unfunded Pension Liability Explodes to $15 Billion. Leadership Nowhere To Be Found

Photo courtesy of channone, flickr

Photo courtesy of channone, flickr

LA WATCHDOG — Our enlightened elite who occupy Los Angeles City Hall tell us that pension reform is not necessary. After all, the recent actuarial report for the Fire and Police Pension Plan indicated that its $19 billion retirement plan was 94% funded as of June 30, 2016.

But as we all know, figures never lie, but liars figure, especially when it involves the finances of the city of Los Angeles.

The city will say that a pension plan that has assets equal to 80% of its future pension obligations is in good shape.  Baloney! Pension plans should aim to be 100% funded, especially in down markets. And in today’s bull market, where the Dow Jones Industrial Average is hitting record highs, the pension plan should be 120% funded so that it can withstand another bear market.

Even at the 94% funded ratio, the unfunded pension liability for the retirement plan is pushing $1.2 billion, not exactly chump change when compared to the projected payroll of $1.4 billion for the 12,800 active cops and firefighters.

But there is more bad news that is buried in the opaque actuarial reports that, when pieced together and analyzed, reveals that the overall Fire and Police Pension Plan is over $6 billion in the red and that only 75% of its future obligations are funded.

The Fire and Police Pension Plans are also responsible for Other Post-employment Benefits (“OPEB”) which covers medical benefits for retirees. But the $3 billion of OPEB obligations are less than 50% funded, resulting in an additional $1.6 billion in unfunded liabilities.

The city is also cooking the books by “smoothing” the actual gains and losses in its investment portfolio over a seven year period. This little trick is covering up a $600 million hit to its investment portfolio.

Finally, if the newly calculated liability (that includes adjustments for OPEB and smoothing) of $3.4 billion (85% funded) is adjusted to reflect the more realistic investment rate assumption of 6.5% (as recommended by Warren Buffett), the unfunded pension liability soars to $6.25 billion and the funded ratio plummets to 75%.

When combined with the $9 billion liability of the Los Angeles Employees’ Retirement System, the city’s total unfunded pension liability exceeds $15 billion. And this liability is expected to double over the next ten years based on realistic rates of return that are in the range of 6% to 6.5%.

But what are Mayor Eric Garcetti, City Council President Herb Wesson, Budget and Finance Chair Paul Krekorian, and Personnel Chair Paul Koretz doing to address the single most important financial issue facing the city?

Nothing! Absolutely nothing other than put their heads in a potato sack and hope that a robust stock market will make the $15 billion problem go away.

They have ignored the recommendations of the LA 2020 Commission to form a Committee on Retirement Security to review and analyze the city’s two pension plans and develop proposals to “achieve equilibrium on retirement costs by 2020.”

Krekorian and Koretz made the bone headed suggestion to raise the investment rate assumption to 8% so that the city would be able to lower its annual required pension contributions to the underfunded pension plans, allowing more money for union raises.

Wesson has not even created a Council File for the pension and budget recommendations of the LA 2020 Commission.

But the real culprit is Garcetti who has refused to address the pension mess that will eventually become a crisis. He has not asked his political appointees on the two pension boards to initiate a study of the pension plans and the city’s ever increasing contributions that now devour 20% of the city’s General Fund budget.  He has refused to contest the State’s Supreme Court “California Rule” which does not allow the city to reform the pension plans by lowering future, yet to be earned benefits.

Rather than look out for the best interests of the city and all Angelenos, he continues to kiss the rings of the campaign funding union leaders who are vital to his political ambitions.

The city’s lack of openness and transparency and its unwillingness to address its ever growing, unsustainable $15 billion pension liability can only be categorized as a major league cover up that should be front and center in the upcoming March election.

Where’s Eric?

Jack Humphreville writes LA Watchdog for CityWatch. He is the President of the DWP Advocacy Committee and is the Budget and DWP representative for the Greater Wilshire Neighborhood Council.  He is a Neighborhood Council Budget Advocate.  Jack is affiliated with Recycler Classifieds — www.recycler.com.  He can be reached at:  lajack@gmail.com.

This piece was originally published by CityWatchLA

‘Sanctuary California’ Faces Bankruptcy if Trump Withholds Federal Funds

california empty pocketsAlthough Los Angeles Mayor Eric Garcetti warned President-elect Trump that defunding sanctuary cities would cause “social, economic and security problems,” Sanctuary California could face bankruptcy if the Trump administration follows through on threats to pull billions in federal funding.

There are 300 “sanctuary cities” and counties around the United States that have policies in place blocking local law enforcement from complying with U.S. Immigration and Customs Enforcement detainer requests for immigration holds.

An ICE detainer is a written request for a local jail or other law enforcement agency to detain an individual for an additional 48 hours (excluding weekends and holidays) after his or her release date, in order to provide ICE agents extra time to decide whether to take the individual into federal custody for removal purposes.

The Department of Justice’s Inspector General issued a memorandum in August that advised that sanctuary city practices violate federal law. The IG finding empowers Sen. Jeff Sessions (R-AL), if confirmed as U.S. Attorney General, to strip sanctuary cities — including New York, Los Angeles, Chicago and Washington, D.C. — of certain federal law enforcement grants. He can also seek court orders to strip federal grants from any government entities refusing to comply with U.S. laws.

Sessions applauded the finding: “Now, the law and the American people demand that this administration cease its acquiescence in this illegality. The Obama administration must immediately take action to withhold significant federal law enforcement funding for these offending jurisdictions.”

Mayor Garcetti and other big city Democrat mayors have defiantly said after Trump’s election that despite the federal government providing an average of 25 percent of state and local government general revenues, they still will not comply with ICE holds.

The reason local government can afford to flout the incoming Trump administration without much fear,is that 95 percent of the $620 billion in federal intergovernmental transfers are block-granted directly to states, who then make transfers to their cities and counties. Direct federal block grants to local government amount to only about $30 billion, and half of that is untouchable as public health and Homeland Security funds.

But there are four Democrat-controlled “Sanctuary States” that are also defying federal law by refusing to honor ICE detainer requests for immigration holds. Connecticut, New Mexico, and Colorado receive relatively small amounts of federal dollars due to low population. But the State of California, with the largest population, is the top receiver of federal funds in the nation.

Of California’s $252.5 billion in total estimated government spending for fiscal year 2015, the federal government provided $93.6 billion, or 37 percent. That works out to a stunning $6,451 for every man, woman and child in the state.

The breakdown of California’s federal funding, by department, includes: 52 percent for Health and Human Services (Medicaid); an average of 25 percent of all state and local government’ general revenues for Labor and Workforce Development, 14 percent for Education; 6 percent for Transportation; 2 percent for Legislative, Judicial and Executive; and 1 percent for General Government, which includes Natural Resources, Environmental Protection, Corrections and Rehabilitation, State and Consumer Services.

Breitbart News reported in May that Moody’s Global Credit Research fiscal stress-tests found that California was already the least prepared large state to weather the next recession. The credit rating service followed up in August with a warning to municipal bondholders that the plummeting financial condition of many California counties, cities, school districts and other agencies would soon result in large numbers of municipal bankruptcy filings.

The only time in the last 40 years California that suffered a 3.7 percent or more of GDP decline was the 4.4 percent plunge in 2009 during the Great Recession. Given the state’s precarious financial condition, any cut-off of federal funds by the Trump Administration could bankrupt California and many of the state’s local government entities.

This piece was originally published by Breitbart.com/California