Good money after bad: Should L.A. taxpayers pay $40,000 to steal $20,000 jobs from South Gate?
Pencils down, amateur policy wonks: Is a $16,000-a-year job really worth $40,000 in public subsidies paid thanks to the leaders at Los Angeles City Hall?
That strange question is quietly being decided on Thursday, January 21, by the Los Angeles Community Redevelopment Agency, whose Board of Commissioners is expected to vote on a deal with developer Pacific Center Place that will hand the firm a city-owned piece of land and public loans nearing $6 million. All to move 30 jobs a few miles out of the city of South Gate and into South Los Angeles — and then call it “job creation.”
The vote this week focuses on relocating a small garment-industry factory just 3.7 miles, from working-class South Gate, across the city limits, and into L.A.
Should such a move, essentially stealing a small number of low-wage jobs from a neighboring and heavily minority suburb, be considered job creation? “In this economy, anything that creates jobs is job creation,” insists Bruce Ackerman, the CRA commission chair, a political appointee of Mayor Antonio Villaraigosa’s. But, “It’s got to be a good business deal — until I see the numbers, I can’t really weigh in,” he qualifies.
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In truth, Ackerman has all but signed off on the strange deal. He supported it when it was brought before him at a CRA commission meeting on December 17 and, when commissioners deadlocked on the controversial plan at that time, Ackerman pushed for its reconsideration this week.
Ackerman is president and CEO of the Alliance of the San Fernando Valley, a business-booster organization, and his expertise is not in creating jobs. His online résumé shows that he is focused on building the coffers of Chamber of Commerce–type organizations, not on gaining hands-on knowledge about running private companies.
Under the deal terms that Ackerman has been pushing, the CRA would turn over to developer Pacific Center Place a South Los Angeles property at 812 East 59th Street, which it originally purchased for $2.7 million in public funds. The CRA would also provide a $750,000 forgivable loan, for a total of nearly $3 million in low-interest government loans. All of that help — both free and sweetheart loans — would flow to Pacific Center Place, owned by Sam Eshaghian, who develops land for the garment industry.
In return, Eshaghian would bring to South Los Angeles 30 existing jobs connected to a small garment-related manufacturer called D&J Sportswear, now based in South Gate.
The agreement maps out a schedule by which the number of jobs would, theoretically, grow to 40 in D&J’s fourth year and, it is hoped, expand to 74 jobs in its fifth year. At that point, if this employment projection is ever reached, the developer would be forgiven the full sum of the smaller $750,000 loan.
What is the CRA really up to here? A basic analysis using a commonly accepted industry formula demonstrates that if the estimated 74 jobs are ever delivered — a gamble that could backfire badly — each of those 74 jobs would have cost L.A. taxpayers more than $40,000. If only 40 jobs are created, the cost to taxpayers for each job could nearly double. And at least half of the envisioned 74 jobs would pay only the so-called living wage, currently $11.55 per hour, or about $23,100 a year. Under this plan, the other half of the workers could be hired at minimum wage, about $16,000 annually.
“I think this is a terrible deal for the city and for the people of South Los Angeles, who deserve better,” says Ackerman’s colleague, CRA Commissioner Madeline Janis, who termed the deal “more [money spent] per job than I’ve seen for a long time at the CRA.”
For South Gate, whose unemployment rate has hovered between 15.5 percent and 16 percent, a competing bid to keep Los Angeles City Hall from stealing those jobs is not in the cards.
“There’s no way I could even entertain” a similar package, says Steve Lefever, the city’s director of community development. “I don’t have the level of resources that L.A. is considering for this particular move.”
South Gate Mayor Henry C. Gonzalez is far more blunt. “That kind of money, for 30 or 40 jobs, is crazy,” Gonzalez tells the Weekly.
Gonzalez has hands-on experience luring industry to his small city, which was abandoned by big car manufacturers in the 1980s. He is a former bargainer for the United Auto Workers and is his city’s first Latino mayor. “I always ran for office on the basis of jobs, jobs, jobs,” he says.
In the mid-1980s he negotiated with General Motors to sell their former South Gate plant land to the city for $12 million instead of the appraised $38 million. The city created an industrial park that became home to Koos Manufacturing and its 300 jobs. Later, Gonzalez helped Koos to secure a second South Gate plant. Today, Koos, a garment manufacturer, provides 1,700 jobs in South Gate.
Eshaghian is a third-generation garment manufacturer, who first interacted with D&J Sportswear when the company supplied goods for his business specializing in women’s clothing. The CRA-backed project, if approved January 21, would be his first involving public subsidies — but not his first venture as a developer for garment-related industries. Three years ago, he purchased a property in South L.A. that now houses American Apparel and another manufacturer.
In March 2009, he approached the CRA regarding the South L.A. property the CRA owned at 812 East 59th Street. Although private enterprise has been slow to expand in South L.A. — and City Hall has poured money into downtown instead — Eshaghian says, “I believe in the area. I think it’s going to be a good area in the next 15 to 20 years. It’s going to be very prosperous.”
Eshaghian disputes the idea that the 74 positions promised would cost Angelenos a minimum of $46,000 each in public funds. He also insists that the company will eventually employ between 150 and 200 people.
He says the CRA is ridding itself of a bad property — land it bought at the height of the real estate market that is now worth, he claims, $1.1 million “maximum.” Eshaghian also says that toxins left over from the land’s previous occupant, Goodyear, must first be cleaned up, and “it’s going to cost $400,000 to $600,000.”
But, Janis points out, that cleanup is being paid for with the CRA’s $750,000 forgivable loan and could turn out to be a freebie for the developer. And Alejandro Ortiz, the commissioner who along with Ackerman pushed for this deal in December, says that the most recent appraisal of the property valued it at $2.4 million, not $1.1 million.
“It is not an ideal deal,” Ortiz concedes. “I just am looking at the options.”
Ortiz contends that the scheme is simply the best route for the CRA to rid itself of the land. Originally, he says, the property was purchased to create an incubator for local businesses now operating out of area garages, but that this idea fell through as the economy soured.
“How do we get out of this without too much pain?” Ortiz says. “What I really don’t want is for us to own an empty building for 10 years.”
According to Ortiz and others, there is also the larger context to consider.
“When you’re looking at places that are really economically ‘disinvested,’ looking at the straight ratio between the investment and the number of jobs created, you potentially underestimate the total benefit to the community,” says Dena Belzer, president of the Berkeley-based consulting firm Strategic Economics. “The best way to think about it may be not to think of it in terms of subsidy per job,” she says, “but how it fits in a larger strategy for the city of L.A.”
In other words, will the D&J jobs somehow draw other firms to the neglected area?
Renata Simril, former L.A. deputy mayor for economic development, says, “On the face of it,” it may appear that the CRA is “overincentivizing” by throwing so much public money at a tiny nearby firm. But given D&J’s specialized services — it cuts fabric into patterns — she says manufacturers who use the company could possibly decide to move closer.
Such theories have been the foundation of the billions of dollars spent by local, state and federal governments on redevelopment annually. But Dr. Alec Levenson of USC’s Marshall Center for Effective Organizations, which falls under the university’s business school, believes there is a more effective alternative. Levenson’s studies lead him to conclude that in areas which businesses have traditionally avoided, such as South L.A., cities are better served improving infrastructure and services that create a more hospitable business environment overall, instead of throwing taxpayer monies at individual businesses.
Such per-business or per-developer subsidies have become shell games, he says, in which cities compete with each other. It is a game that “companies and developers have learnt how to play a long time ago,” he says.
“Subsidizing developments directly is almost always a losing proposition from a taxpayer’s perspective,” Levenson adds. “These huge net transfers to businesses out of taxpayer monies [result in] about the same distribution of jobs that you would have otherwise.”
As for whether the 30 positions amounts to job creation, as Ackerman asserted to the Weekly, “Is it really less than four miles?” asks Levenson. “To me that’s giving a really nice subsidy for someone who was already employed locally.”