By Joseph Tsidulko
By Patrick Range McDonald
By David Futch
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By Dennis Romero
By Jill Stewart
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When Mayor Antonio Villaraigosaand the Los Angeles City Council announced plans last year for a $1 billion bond measure to pay for affordable housing, developers and lobbyists from all over Los Angeles flocked to the campaign to lend their support. And few companies were more eager than CityView, a company that finances the construction of homes for entry-level buyers.
CityView’s founder, former secretary of the federal Department of Housing and Urban Development Henry Cisneros, signed up as one of the two chairmen of the Proposition H campaign, telephoning business leaders across the city for contributions. The company’s chief operating officer, Sean Burton, became the campaign’s treasurer, signing off on contribution reports to the Ethics Commission.
And CityView’s retinue of developers, lawyers and partners gave nearly $200,000 to win voter approval of the measure, which would have hiked Los Angeles property taxes to build 10,000 new homes and apartments.
Prop. H went down to defeat on November 8, falling four percentage points shy of victory. But now, CityView has teamed up with city officials on a new home-building initiative — securing up to $40 million in municipal pension funds to build housing for families who earn $52,000 and up.
The Los Angeles City Employee Retirement System, or LACERS, voted last week to invest up to $25 million in CityView. And a second retirement system, which covers L.A.’s police officers and firefighters, is slated to invest another $15 million this week (the vote is scheduled for Thursday, the day the L.A. Weekly hits the streets).
The funding for CityView is only the latest example of the city’s primary pension fund, where four of seven seats are controlled by Villaraigosa, pouring millions of dollars into the construction of condos, apartments and shopping centers, many of them in Southern California. Since Villaraigosa’s election in 2005, the pension fund has invested $160 million in “urban infill” — eight times as much as the amount invested during the prior two-year period.
That shift in pension funds stands to dramatically rework the basic arithmetic of city politics. Under the old system — one that already tended to make voters a bit queasy — politicians at City Hall got elected with contributions from real estate developers, who in turn asked them to approve their construction projects. Under the new system, city government is even more directly involved, becoming not only the gatekeeper, but the financial backer, for many of the city’s biggest development projects being pursued by their contributors.
“It’s a conflict of interest,” says Richard Close, president of the Sherman Oaks Homeowner Association. “When the mayor and council are deciding whether or not to approve these projects, whose interests are they looking at? Are they looking at whether the project is beneficial to the community, or whether the project will be beneficial to the pension plan?”
Villaraigosa spokesman Matt Szabo says the mayor enthusiastically embraced the concept of the “double bottom line” — asking public pension funds to achieve societal goals, like the construction of housing, while seeking a solid return on their investments. But he insists that Villaraigosa never instructs his pension-board appointees on investment strategies.
“He doesn’t dictate policy or how they should vote,” Szabo says.
CityView’s 69-page investment pitch to LACERS, which represents nearly 42,000 working and retired municipal employees, name-dropped the mayor, pointing to Villaraigosa’s support for Proposition H and his belief that public agencies should help build housing. The booklet, which includes a photo of Villaraigosa at a housing conference, also bragged about CityView’s work with the mayor in securing a zoning change for one of its loft projects.
Still, Cisneros insists he has never spoken to the mayor about his company’s request for city pension funds. “We’re going on the merits,” he says. “And the merits are, you can use pension resources to solve problems, including the production of work force housing.”
By 2009, LACERS will expand its investment in urban real estate even more, moving it from 4 percent to 7 percent of its $10.5 billion portfolio — a move that could pour at least $300 million into real estate development. Robert Aguallo Jr., the city official who runs LACERS, says the shift toward “work force” housing — one step above subsidized apartments — is the result of sound investment policy, not any political agenda. Aguallo also downplays worries about the increasingly jittery housing market.
“When you do real estate, there’s always a housing-bubble concern,” he says. “But given the demand for housing” among workers who have to commute long distances, “it makes sense to [invest in] housing that’s closer to downtown or the city’s urban areas.”
While LACERS voted unanimously to invest in CityView, a second city-related pension board initially balked — not out of concern over the real estate market, but because of a decade-old investigation involving Cisneros. Commissioner George Aliano, who serves on the Los Angeles Police and Fire Pension board, said CityView is a risky investment, since Cisneros pleaded guilty in 1999 to one misdemeanor count of lying to the FBI about money he paid to a former mistress.
“It doesn’t look good,” Aliano told his colleagues. “Yes, he was the youngest city councilman ever elected and the mayor of San Antonio. But he was caught up in something, and he was stopped short.”
Aliano and Commissioner Donald Keith, the commission’s two police representatives, voted against CityView last week, causing the proposal to fall one vote shy of passage. Commissioner Sean Harrigan, the man selected by mayor to head the board, promised to bring the proposal back this week, saying Aliano had found smoke — but no fire.
And Villaraigosa appointee Steve Juarez, who voted in favor of CityView, argued that the pension board has no history of checking to see if a principal in an investment fund is involved in “moral turpitude.”
Cisneros, for his part, said his only crime was telling the FBI, which was conducting a background check on him in the weeks before he joined the Clinton administration, the wrong amount that he paid to his mistress in San Antonio. The guilty plea was followed by a pardon from Clinton, Cisneros added. “That investigation, that went on for over 10 years and cost $22 million, closed out last year with no further allegations or charges,” he said. “Every aspect of my life was scrubbed, and they concluded that I provided erroneous information on a financial amount.”
A onetime executive with Univision, Cisneros now spends a majority of his time in San Antonio, where his wife is currently running for his old City Council seat. But in its pitch to LACERS, Cisneros’ company touted its political connections in Los Angeles, saying it worked with Villaraigosa and Councilman Bill Rosendahl to secure approval for the 84-unit Tennessee Lofts in West Los Angeles.
CityView said in its written presentation that the developer was unable to get the residential zoning needed for its project, until CityView became a partner. Once the planning commission approved the new zoning, the value of the project increased from $11.5 million to $18.75 million, the brochure states.
While CityView was a major force behind Proposition H, other pension funds also pushed for passage of last year’s failed housing bond and property-tax increase. The campaign received $25,000 from the Southern California Smart Growth Fund, which received $10 million from LACERS three years ago. The campaign received $10,000 from Phoenix Realty Group — whose real estate investment fund recently collected a combined $65 million from three city and county pension funds.
One week after Proposition H was defeated, Villaraigosa held a press conference to applaud those pension agencies for investing in the Phoenix fund, formally known as Genesis II. While he voiced disappointment about the bond measure, Villaraigosa said the city can play a bigger role in building housing.
“We can do it by maximizing every public dollar, by working harder to find ‘win-win’ investments with our pension systems,” the mayor said in his prepared remarks, which were later published in The Planning Report, a newsletter focused on development.
Szabo, the mayor’s spokesman, said such remarks should not be interpreted as any kind of signal to the city’s pension boards on how to invest. “There’s a difference between voicing support for investment that benefits the community after the decision had been made, and directing the investment, which the mayor does not do,” he said.